Japan's economy expanded at an annual rate of 1.1 percent in the second quarter. Yet beneath this modest growth lies a troubling trend for households. Inflation-adjusted household spending declined in June, falling 6.4 percent from the previous month, as families tightened their budgets. More than 9,500 food and beverage products are expected to see price increases through September, according to research firm Teikoku Databank. Over ninety percent of these hikes are attributed to higher raw material costs driven by elevated crude oil prices.
The pressure on Japanese consumers stems largely from the ongoing Middle East crisis. The crisis has disrupted oil supplies and pushed up costs across the supply chain. While some sectors show resilience—particularly technology firms investing in artificial intelligence and semiconductor equipment—these gains are unlikely to offset the drag on domestic demand. Economists warn that if the conflict persists, Japan could face stagflation. This is a dangerous combination of economic contraction and accelerating inflation. It would further squeeze household budgets.