Japan households’ mood hits five-year low level as tax hike bites in the fourth quarter of the last year. Consumers curbed spending on dining out, clothing and daily necessities after the tax increase, a survey by Bank of Japan (BOJ) showed, highlighting the toll that the higher levy was taking on private consumption.

Japanese households’ confidence in the economy worsened to a five-year low in the three months to December, the survey showed on Thursday, adding to a recent slew of gloomy signs for the fragile recovery.

The ratio of households who expect prices to rise a year from now also slid to a more than two-year low, underscoring the challenge the Bank of Japan faces in firing up inflation to its elusive 2% target.

A diffusion index measuring households’ confidence in the economy stood at minus 29.8 in December, the worst reading since the corresponding month of 2014, the quarterly survey showed.

The survey, conducted for about a month to Dec.3 on 4,000 households, also showed that 32.9% of respondents cut back on spending after a sales tax hike in October.

Asked how prices were moving when excluding the impact of the sales tax hike, 64.5% said prices rose from a year ago, down from 70.5% in the previous survey.

Of the total, 73.3% expect prices to rise a year from now, down from 79.8% three months ago and the lowest level since September 2017, the survey showed.

Japan’s economic growth ground to a near halt in July-September and is likely to have contracted in the final quarter of last year as the US-China trade war knocked exports.

The BOJ is likely to revise up slightly its economic forecast for the fiscal year starting in April to reflect an expected boost from the government’s $122 billion spending package, sources have told Reuters.

But many analysts expect inflation to remain subdued as slow wage growth keep households from loosening their purse strings.

Annual core consumer inflation stood at 0.5% in November, remaining distant from the BOJ’s 2% target.

Meanwhile, Japanese shares jumped the most in nearly a month on Thursday, recovering all the losses from the previous session, after the United States and Iran signalled their desire to avoid further military conflict.

The benchmark Nikkei index ended up 2.31% at 23,729.87, its biggest one-day per centage increase since Dec. 13.

The Nikkei erased Wednesday’s 1.57% decline, triggered by Iranian missile attacks on facilities hosting U.S. military forces in Iraq in retaliation to the US killing of a prominent Iranian general last week.

The attack initially roiled global financial markets as it stoked fears of a wider conflict in the Middle East.

However, markets regained their composure after U.S. President Donald Trump said there were no casualties and the United States did not necessarily have to hit back.

Iranian Foreign Minister Mohammad Javad Zarif also said the missile strike “concluded” Tehran’s response to the US killing last week of Qassem Soleimani, who was responsible for building Iran’s network of proxy armies across the Middle East.

“For now there is a sense of relief, but there could be more problems in the future if the Iranian public does not accept this pause in hostilities,” Yutaka Masushima, a market analyst at Monex Securities in Tokyo.

“Excluding geopolitical risks, there is a strong case for Japanese equities to push higher. Data from the United States and Europe suggest that the global economy is improving, which means Japanese corporate earnings will bottom out soon and start rising.”

The technology and consumer discretionary sectors led the advance as shares of electric part maker Omron Corp and video game maker Bandai Namco Holdings Inc rose.

There were 217 advancers on the Nikkei index against eight decliners on Thursday.

The largest percentage gainers in the index were online media company CyberAgent Inc up 6.77%, followed by semiconductor manufacturing equipment maker Screen Holdings Co Ltd gaining 6.1%, and photography and medical device maker Fujifilm Holdings Corp, up 6.04%.

The largest percentage losers in the index were oil and natural gas developer Inpex Corporation, down 2.7%, followed by oil refiner JXTG Holdings losing 2.68%, and engineering company JGC Holdings Corp ending 1.44% lower. The broader Topix index rose 1.63% to 1,729.05. The volume of shares traded on the Tokyo Stock Exchange’s main board was 1.15 billion, compared to the average of 1.12 billion in the past 30 days.

Reuters