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Japan's improved household fundamentals will support domestic demand

Thanks to Abenomics, the fundamentals for households have improved. Net domestic fund demand is now expanding (i.e. spending power for both corporates and the government has been boosted) and, at the same time, the household savings rate is increasing. 

However, the reason why recovery in consumption was weaker than expected during the past months is because households had to repair fundamentals first until their low savings rate improved before actually expanding consumption. While the consumption tax hike has obviously been a burden on households, they have also assumed the burden of the surge in fuel import costs. This movement needs to be reversed so that Japan's domestic demand can truly expand further. 

As terms of trade improved substantially, the burden on households has eased. As a result, wealth transfers from corporates to households are continuing, and the household savings rate has benefited from a V-shaped recovery, especially as the expansion in aggregate wages is expected, providing households with more cash to spend. The majority of this cash is expected to be consumed, thus supporting Japanese domestic demand further out.

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