Japan household spending rebounds slightly in December as real wages rise

By Leika Kihara

TOKYO (Reuters) – Japan’s household spending rose slightly in December from a year earlier to mark the first increase in four months, government data showed on Friday, suggesting a pick up in consumption may moderate pressure from slowing global demand.

The data offers some relief to Bank of Japan policymakers worried that heightening overseas economic uncertainties may discourage firms from raising wages and hurt consumption.

The 0.1 percent year-on-year gain fell short of a median market forecast for a 0.8 percent rise and followed a revised 0.5 percent drop in November.

Taken together with separate wages data, also released on Friday, the numbers suggested higher household income may help underpin consumption. The inflation-adjusted real wages rose in December from a year earlier.

Prime Minister Shinzo Abe’s “Abenomics” stimulus policies have boosted corporate profits by lifting stocks and giving exporters a competitive advantage overseas through a weaker yen.

But they have failed to fire up private consumption, which accounts for about 60 percent of gross domestic product (GDP), as companies remain reluctant to raise wages.

Japan’s economy shrank in the July-September quarter last year. Data due next week will likely show that growth rebounded in the fourth quarter led by capital expenditure and consumer spending, a Reuters poll showed.

But weak exports could dampen the economy’s momentum, especially as slowing global demand and U.S.-Sino trade frictions have already hurt business sentiment, analysts say.

The BOJ is caught in a dilemma. Years of heavy money printing have failed to accelerate inflation, forcing the central bank to maintain its massive bond buying program despite financial institutions having to endure weak profits from near-zero interest rates.

Left with diminished policy ammunition, many BOJ policymakers are wary of ramping up stimulus unless risks threaten to derail Japan’s economic recovery.

Japan’s annual core consumer inflation hit a seven-month low of 0.7 percent in December and may ease further in coming months due to lower oil prices and soft household spending, analysts say.

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