October 8, 2019 / 12:26 AM / 12 days ago

Japan's household spending rises for ninth month, outlook still fragile

TOKYO (Reuters) - Japan’s household spending rose for the ninth straight month in August, offering some relief for the export-dependent economy amid the U.S.-China trade war, but a fall in wages points to further strains on consumers after a sales tax hike this month.

Shoppers look around goods at a shop in Tokyo, Japan October 1, 2019. REUTERS/Kim Kyung-Hoon/Files

The mixed readings will keep policymakers under pressure to announce more fiscal and monetary stimulus measures to shield the economy from a recession, analysts say.

Household spending in August rose 1.0% from a year earlier, accelerating form a 0.8% increase in July but falling short of a median market forecast for a 1.2% increase, government data showed on Tuesday.

The ninth consecutive month of gains was the longest such streak since comparable data became available in 2001.

“Consumption appeared to have been fairly strong in August after weak spending in July, when bad weather kept consumers at home,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“But the outlook isn’t bright. Wage growth is weak and the effect of October’s sales tax hike will begin to show. Consumer sentiment has been pretty gloomy, which means risks to the outlook are tilted to the downside.”

Japan rolled out a twice-delayed increase in the sales tax to 10% from 8% on Oct. 1, a move considered critical for fixing the country’s tattered finances.

While the government has taken steps to ease the burden on consumers by offering vouchers and tax breaks, there are fears the higher tax could hurt an economy already feeling the pinch from global pressures.

Real wages adjusted for inflation fell for an eighth straight month in August, raising concerns for private spending.

Japan’s jobless rate remains at record-low levels, but job offers are slowing in a sign the fallout from the trade tensions is broadening.

In another survey, Japan’s service sector sentiment index rose for a second straight month in September partly helped by a rush to get in some shopping before the sales tax hike. But the government warned about the potential adverse impact from the higher sales levy and uncertainties from overseas economies.

The survey of workers such as taxi drivers, hotel workers and restaurant staff - called “economy watchers” for their proximity to consumer and retail trends - showed confidence rose to 46.7 in September, up from 42.8 in August.

Upcoming data could be hard to read as households may have made purchases ahead of the sales tax increase, which will inflate consumption data up till September and may lead to a downturn in spending from October onward, analysts say.

The strength of consumption and capital expenditure will be crucial to the Bank of Japan’s decision on whether to loosen monetary policy at its rate review on Oct. 30-31.

The central bank has said while robust domestic demand is making up for the weakness in exports, it stands ready to act if risks heighten enough to derail Japan’s recovery.

Any sign that job growth is peaking also bodes ill for Prime Minister Shinzo Abe’s administration, which has flagged a strong job market as among its biggest policy accomplishments.

Abe pledged on Friday to deliver “all possible steps” if risks to the economy intensified, signalling his readiness to boost fiscal spending if this month’s sales tax hike triggers a sharp downturn in growth.

Editing by Jacqueline Wong and Kim Coghill

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