BOJ signals low hopes for consumer spending as population falls

The Bank of Japan signaled that the shrinking of Japan’s population means that it’s increasingly difficult to achieve robust growth in overall consumer spending, suggesting that weak aggregate consumption by itself might not point to deteriorating household demand.

“From a demographic perspective, attention should be paid to the point that, to begin with, it is difficult to expect robust growth in aggregate private consumption as a trend,” the BOJ said in its full quarterly outlook report released Monday. “Specifically, the rate of decline in Japan’s population has been accelerating since around 2020.”

Japan’s population fell 2.5% in 2025 from five years earlier, the internal affairs ministry reported in September. That was the fastest decline on record going back to 1920 and roughly three times the pace recorded in 2020.

Private consumption accounts for about half of Japan’s economy, making its strength a key consideration for the BOJ as it weighs another interest-rate increase, with a move widely expected in December. BOJ Gov. Kazuo Ueda’s board stood pat last week after raising borrowing costs in September.

BNP Paribas and Daiichi Life Research Institute are among those forecasting a decline in consumer spending in third-quarter gross domestic product data due on Nov. 16.

While that would mark the first decline in more than two years, the BOJ’s analysis suggests the drop alone may not necessarily signal enough weakness to derail further rate hikes.

The size of Japan’s economy has expanded to a record high thanks to a sustained recovery, but aggregate consumer spending is still below pre-pandemic levels.

The BOJ’s estimate released Monday helps explain that divergence: consumption per capita early this year was roughly 4% higher than in 2015, while aggregate consumption was almost flat.

The figures underscore the growing importance of distinguishing between weakness caused by deteriorating household demand versus sluggishness stemming merely from a shrinking population as policymakers assess the economy.