People wearing masks stand outside a shop with infection prevention instructions on it’s window in Harajuku shopping area, amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan August 9, 2021. REUTERS/Androniki Christodoulou

TOKYO, March 11 (Reuters) – Japan’s household spending rose in January but the business mood sank in the first quarter as rising raw material costs squeezed corporate margins, leaving the country’s resource-poor economy facing a hard grind ahead.

The results add pressure on policymakers to ramp up fiscal stimulus to support Japan’s economy, which is likely to have stalled in the current quarter and faces fresh risks from soaring fuel prices blamed on the Ukraine crisis.

“While infection numbers are gradually falling, service consumption hasn’t fully resumed. This heightens the chance Japan’s economy contracted in January-March,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Households may keep their purse strings tight given the surge in energy costs and rising prices of daily necessities.”

Household spending rose 6.9% in January from a year earlier, government data showed on Friday, more than a median market forecast for a 3.6% gain. It followed a 0.2% drop in December.

The increase was largely due to the base effect of a slump in January last year, when COVID-19 state of emergency curbs were imposed.

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