Drop in Japan's July household spending less than expected; jobless rate at 21-year low

Tokyo

JAPANESE household spending fell less than expected in July and the jobless rate hit a two-decade low, offering some hope for policymakers battling to pull the world's third-largest economy out of stagnation.

But with the economy barely growing and inflation sliding further away from the Bank of Japan's (BOJ) 2 per cent target, a majority of economists expect the bank to ease further next month, when it conducts a comprehensive review of the effects of its existing stimulus programme.

Household spending fell 0.5 per cent in July from a year earlier, less than a median market forecast for a 0.9 per cent fall, data by the Internal Affairs Ministry showed on Tuesday.

"Overall, consumer spending remains weak as wage growth is dull," Yoshiki Shinke, an economist at Dai-ichi Life Research Institute in Tokyo, said before the reports were released. "Households have been keeping their purse strings tight since the sales-tax increase in 2014."

"While exports and consumption by households and companies are levelling off, there's no change to the picture that Japan's economy will have no driver to boost growth this year," Mr Shinke said.

Consumers are wary of spending because wages are barely rising.

Separate data showed retail sales slid 0.2 per cent in July from a year earlier, less than a median market forecast for a 0.9 per cent drop.

The seasonally adjusted unemployment rate fell to 3 per cent in July from 3.1 per cent in June, hitting the lowest rate in more than 21 years and hovering near levels the central bank considers as full employment.

Japan's economy ground to a halt in April-June and analysts expect any rebound in the current quarter to be modest as weak global growth and the yen's 20 per cent rise against the dollar this year hurt exports and capital expenditure.

Despite three years of heavy money printing by the BOJ, soft household spending and a strong yen pushing down import costs have kept inflation distant from the bank's 2 per cent target.

Core consumer prices fell in July by the most in more than three years as more firms delayed price hikes due to weak consumption, keeping the BOJ under pressure to expand an already massive stimulus programme. REUTERS, BLOOMBERG