Business / Economy

Japan's household spending firm but wages weaker

Reuters

Household spending rose for the seventh straight month in June amid signs that resilient consumer activity could help counter the effects of weak global demand, although the consumption outlook was clouded by softer wages.

The Bank of Japan is hopeful that a pickup in private consumption will help it achieve its 2 percent inflation target even as the intensifying U.S.-China trade war hurts exports and business sentiment.

Household spending rose 2.7 percent in June from a year earlier, nearly double the median forecast for a 1.4 percent gain, government data showed Tuesday.

In May, spending rose at the fastest pace in four years, in a sign that improving domestic demand will offer some support for an economy facing growing external pressure.

From the previous month, household spending declined 2.8 percent in June, after experts offered a median estimate for a 3.0 percent drop.

“Consumer spending improved in the second quarter, especially in the service sector, from the previous quarter. The employment situation is recovering, so private spending is firm,” said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute. “But wage recovery is subdued, so consumer spending is not strong enough to boost the growth.”

The government maintained its view that “consumer spending is picking up.”

Spending on service items, such as domestic package tours, accommodations and air and rail travel, contributed to the growth in household spending, the data showed.

There were some areas of concern about the outlook. Separate data showed real wages adjusted for inflation slipped for a sixth straight month in June, which could undermine domestic spending ahead of the consumption tax hike scheduled for October.

The consumption tax will be raised to 10 percent unless there is an economic shock on the scale of the collapse of Lehman Brothers, officials say.

Some policymakers worry the tax hike will further damage consumer sentiment and hurt an economy already under pressure from the U.S.-China trade war and slowing global demand.

The BOJ last week held off expanding stimulus but committed to doing so “without hesitation” if a global slowdown jeopardizes the economic recovery.

Recent yen appreciation and falls in share prices could fuel speculation for further central bank monetary easing.

U.S. Treasury Secretary Steven Mnuchin said Monday the government had determined that China was manipulating its currency, which knocked the dollar and Wall Street share prices sharply lower. Tokyo share prices also tumbled.

Japan’s economic growth likely slowed in April-June as cooling global demand and trade tensions weighed on exports, but brisk domestic demand offset some of the external pressure, a Reuters poll showed.

The government will announce the growth data Friday.

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