Japan's October household spending falls unexpectedly

Tokyo

JAPAN'S household spending unexpectedly fell in October, and real wages slipped for a third straight month - adding to concerns about the strength of the economy as global trade frictions cloud export prospects.

The data follow a Reuters survey which showed that Japanese firms are becoming more pessimistic about the country's economic prospects due to the China-US trade war and next year's scheduled sales tax hike at home.

Household spending decreased 0.3 per cent in October from a year earlier, government data showed on Friday, confounding a median market forecast of a 1.4 per cent rise and marking the second straight month of falls.

Separate data showed that real wages slipped for a third straight month in October, adding to concerns that a full-fledged recovery in consumer spending is still some way off. Inflation-adjusted real wages in October fell 0.1 per cent from a year earlier, after a revised 0.6 per cent decline in September and a 0.7 per cent drop in August, labour ministry data showed on Friday.

"Conditions aren't falling in place for consumption to strengthen. Recent rises in fuel and food prices may have hurt non-essential spending," said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. "Wages are gradually increasing but not enough to make up for the higher cost of living, so spending isn't rising much."

A pick-up in consumption is crucial for the Bank of Japan (BOJ) to achieve its elusive 2 per cent inflation target, as weak spending has so far discouraged firms from raising prices for fear of turning away cost-sensitive households.

BOJ governor Haruhiko Kuroda repeated his resolve to maintain the central bank's massive stimulus programme, warning of heightened global economic risks.

"The economy is sustaining its momentum for achieving our 2 per cent target. But that momentum lacks strength, so we will carefully watch developments," he told parliament on Friday.

Japan's economy shrank in the third quarter and some analysts warned that any rebound in the current quarter could miss consensus expectations as trade protectionism and slowing global demand hurt business sentiment. REUTERS