Japan's household spending, wages weakness cloud economic outlook

[TOKYO] Japan's household spending rose less than expected in April while real wages declined, adding to worries about consumption as global trade frictions weigh on broader economic activity.

Spending grew 1.3 per cent from a year earlier, government data showed on Friday, up for a fifth straight month but below a median market forecast for a 2.6 per cent increase.

Separate data showed inflation-adjusted real wages fell 1.1 per cent in April from a year earlier, a sign consumer spending power was weakening.

The softer-than-expected household spending and wage declines bode ill for an economy already hurt by a slump in exports to China, and will add to concerns about the expected impact to consumption from the government's planned sales tax increase due later this year.

"The trend is that the wages recovery is tame and consumer spending is weak," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"Risks from global trade conflicts have risen. So if they adversely impact the economy further that could dampen corporate sentiment and then private consumption."

On a month-on-month basis, household spending fell 1.4 per cent in April, following a 0.1 per cent gain in March and a bigger decline than the 0.3 per cent contraction forecast.

The Bank of Japan needs to see an improvement in domestic consumption to achieve its 2 per cent inflation target. Weak spending has held back many firms from raising prices for years for fear of losing customers.

However, businesses now also face uncertainty about whether consumption will be able to grow enough to offset weakness in exports as escalating global trade frictions hurt corporate sentiment.

Overhanging the outlook for Japan's economy this year is the intensifying Sino-US trade war and now US President Donald Trump's more recent threat to impose new tariffs on Mexico.

Also of concern are Japan's plans to raise a sales tax to 10 per cent from 8 per cent in October, unless a major economic shock prevents them from doing so.

The economy in the first quarter showed weakness in private consumption and capital expenditure. But many economists said recent gains in business spending suggested upward revisions to capital spending and overall economic growth in the quarter.

Data for revised gross domestic product (GDP) for January-March will be released on Monday.

REUTERS