By Kantaro Komiya

TOKYO, Reuters – Japanese households spent more in January than in any other month, mainly due to weakness in previous years. However, consumption was likely to have slowed down later in the month as a result of rapid spread of COVID-19 Omicron.

In the aftermath of Russia’s February invasion of Ukraine, rising energy costs are also likely to reduce consumer and business spending. Some analysts have reduced their Japan growth projections, while others project a quarter of contraction.

The government released data on Friday showing that household spending rose 6.9% in January, up from the previous year. This was compared to an economist’s median estimate of a 3.6% increase.

It came after a December 0.2% decline.

According to a government official, the strong year-on–year reading was due to a 6.0% drop in January 2021 after COVID-19 emergency curbs were implemented.

According to data, consumers spent more on transport services, restaurants and hotels than they did on food and electricity in the past year.

Japan imposed restrictions on the hours of restaurants in around 70% of its regions to stop the spread of Omicron coronavirus.

National infections reached a peak in February, with over 100,000 new cases per day. However, curbs were extended to some parts of the country including Tokyo and other cities until late in the month.

On a seasonally adjusted basis spending fell 1.2% month-on-month in January, compared to a prediction of a 3.0% drop in a Reuters poll. This was after a 0.1% increase in the previous months, according to the data.

A revised estimate released this week shows that the third-largest global economy experienced an annual 4.6% increase in its fourth quarter in 2021. It was affected by a drop in coronavirus-related cases.

Its recovery has not been rapid and uneven when compared to most major economies. This leaves the Bank of Japan without a choice other than to keep its super-loose monetary policies, even though many of its counterparts are dialing back the urgent measures that were implemented during the first year of this pandemic.

According to Economists Japan is likely to see its economy remain flat, or even contract, in January-March. With persistently weak domestic demand and the impact of war in Ukraine on global growth, it will be difficult for Japan to grow.