Japanese household consumption rose at the fastest pace since August 2022 at the end of 2024, as strong wage gains led by bonuses helped loosen consumers’ purse strings.

Outlays adjusted for inflation gained 2.7% in December from a year earlier, the internal affairs ministry reported Friday. The result is much better than the median estimate, boosting the three-month moving average to 0.5%, while nominal spending also rose 7% from a year earlier. Outlays were led by housing, which jumped 15.8%, while spending also grew for transportation and communication, as well as medicine.

Friday’s slew of positive spending data raises the question of whether the gains are sustainable, given wage growth in the month was largely supported by the temporary effect of bonuses. Consumer spending, which accounts for more than half of the economy, had struggled to rise in recent months as overall inflation remains high with prices for essential items such as rice surging.

"The results are very strong. There is no doubt that the income environment is improving,” said Taro Saito, head of economic research at NLI Research Institute. "But I think the overall trend remains that consumption is still not strong. We know this survey tends to be pretty volatile, and looking at the details, housing-related items are large, so it may be that this is just a temporary thing.”

Still, consumers’ willingness to spend when they get a boost to their paychecks will likely be encouraging for the Bank of Japan, which continues to seek a virtuous cycle of prices, wages and growth developing hand in hand.

Real wages adjusted for inflation grew for a second consecutive month in December, as nominal wages gained the most since 1997 on a jump in bonuses. That led to further speculation that the central bank remains on track for further hikes, strengthening the yen against the dollar.

The BOJ raised its benchmark interest rate last month partly because it judged that spring wage negotiations between companies and labor unions are heading toward strong results, similar to last year.

Prime Minister Shigeru Ishiba is also urging companies to boost paychecks to help households, while he is also trying to address voters’ discontent over inflation with temporary energy subsidies and fresh cash handouts for low-income households.

Households in Japan may see further support from next year’s budget. Ishiba’s minority government is in the middle of negotiations with opposition parties that are seeking a higher income tax-free ceiling and free education.

Last month, economists surveyed said they expect consumer spending growth to have slowed to 0.5% last quarter. Analysts expect the real economy to have slightly shrunk last year, largely due to weak spending. Friday’s data showed that real spending fell 1.1% in 2024 overall.