TOKYO: Japanese household spending rose less than expected in July as consumers remained wary of loosening their purse strings in the face of higher prices, possibly complicating the central bank's plans to hike interest rates further in coming months.
Consumer spending edged up 0.1 per cent in July year-on-year, compared with the median market forecast for 1.2 per cent growth, government data showed on Friday. On a seasonally adjusted, month-on-month basis, spending decreased 1.7 per cent versus an estimated 0.2 per cent drop.
"There is a very good chance that consumer spending will be negative again in the next month," said Takeshi Minami, chief economist at Norinchukin Research Institute, adding that households appear to be sceptical about whether wage gains will continue next year.
Data a day earlier showed Japan's inflation-adjusted wages grew for the second straight month in July, primarily thanks to a bump in summertime bonuses. Base pay, or regular pay, marked the fastest pace of increase in nearly 32 years, reflecting results from this spring's labour-management wage talks.
But the government said the big test would be whether real wages continue rising in August and beyond, without the seasonal factor of summer bonuses.
While consumers spent more on television and travelling, they cut back on food and utility expenses due to higher prices in July, an internal affairs ministry official said, adding they also put their income into savings.
Private consumption, which accounts for more than half of the economic output, has been a weak spot in Japan's economy over the past year or so. It marked the first gain in five quarters in April-June, however, raising hopes of a consumer-led recovery.
Along with solid wages and durable inflation, robust consumption is among the factors the Bank of Japan says are key to its decision to raise interest rates further.
The BOJ ditched negative interest rates in March and raised short-term rates to 0.25 per cent in July on the view the economy was making progress toward durably achieving its 2.0 per cent inflation target.
The BOJ needs to confirm through relevant data before raising borrowing costs again, Minami said, adding the July rate hike was carried out without looking at the recovery of consumption.
The Japanese government last month upgraded its economic assessment for the first time in more than a year on signs of improving personal spending.