Japan's July household spending up for 8th straight month, but at slower pace

Tokyo

JAPAN'S household spending rose for an eighth month in July, albeit at a slower-than-expected pace, offering a warning about consumption in an economy already struggling with weak external demand amid the bitter US-China trade war.

Risks from a global slowdown and the trade standoff between the United States and China, the world's two largest economies, are threatening economic growth and have added pressure for the Bank of Japan (BOJ) to expand stimulus.

Household spending in July increased 0.8 per cent from a year earlier, but the pace of growth was slower than a 2.7 per cent rise for June and fell short of the median forecast for a 1.1 per cent gain, government data showed on Friday. Despite the slower pace of growth, the rise marked the longest run of expansion since comparable data became available in 2000, and points to resilience in domestic demand ahead of a scheduled sales tax hike to 10 per cent from 8 per cent next month.

From the previous month, household spending slipped 0.9 per cent in July, which compared with a median forecast for a 1.3 per cent decline.

Fewer purchases of air-conditioners, refrigerators, food and electricity slowed the pace of spending, the data showed, which officials attributed to cooler weather.

"In July, the rainy season was long and... temperatures were really low, especially in the second half of the month," a government official said at a briefing.

Japan's economy has benefited from strength in household consumption and capital expenditure this year, growing an annualised 1.8 per cent in the second quarter largely thanks to those sectors less affected by slowing trade.

But concerns about the outlook remain. Separate data showed real wages in Japan adjusted for inflation slipped for the seventh month in July, pointing to potential trouble for consumer and business sentiment ahead. "The fall in wages in July was driven by a slump in bonus payments," Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a note. "Wage growth should rebound towards 1 per cent over the coming months."

There are also worries weakness in manufacturing, following an eight-month slide in exports, could spread to other parts of the economy. Analysts have warned that the economy may lose steam after the sales tax hike, threatening to leave the world's third-largest economy without a growth driver.

Japan is planning to raise its sales tax to 10 per cent from 8 per cent next month. The last sales tax rise in April 2014 caused consumer sentiment to sour, leading to an economic downturn.

Expectations have risen that the BOJ will ease further after the central bank at its last policy meeting committed to expanding stimulus if a global slowdown is delayed and threatens to derail Japan's economic recovery.