By Leika Kihara
TOKYO (Reuters) – Japan’s household spending suffered the biggest annual fall in nearly a year in December and factory output slumped more than expected, renewing pressure on the central bank to ease policy further to support a fragile economic recovery.
The data comes as the Bank of Japan’s two-day rate review continues on Friday, where policymakers will debate whether volatile markets and slowing global growth have heightened risks enough to warrant immediate action.
While many central bankers would prefer to stand pat, Friday’s batch of weak data casts doubt on their argument that Japan’s underlying price trend is improving against the background of a solid economic recovery.
“The economy isn’t doing well and there is a strong chance the economy shrank in October-December. If so, that will keep downward pressure on prices,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
Household spending fell 4.4 percent in the year to December, exceeding market forecasts for a 2.4 percent drop, data by the Internal Affairs Ministry showed on Friday.
It was the fourth straight month of declines and the biggest drop since March 2015, suggesting that slow wage growth is keeping many households wary of spending.
Separate data showed factory output fell 1.4 percent in December, declining at the fastest pace in May 2015 and more than a market forecast for a 0.3 percent drop – a sign weak external demand and sluggish consumption is weighing on manufacturing activity.
Consumer price growth remained distant from the BOJ’s ambitious 2 percent target. The core consumer price index, which includes oil products but excludes volatile fresh food prices, rose 0.1 percent in December from a year earlier, unchanged from the previous month and matching a median market forecast.
The job market continued to tighten, however, offering some signs of hope for policymakers that a shortage of labour will eventually push up wages and underpin consumption.
The jobless rate stood at 3.3 percent in January, steady from the previous month, separate data showed.
The jobs-applicants ratio rose to 1.27 in December, its highest since December 1991.
(Additional reporting by Stanley White, Tetsushi Kajimoto, Kaori Kaneko and Sumio Ito; Editing by Eric Meijer)
