TOKYO (Reuters) - Japan’s household spending unexpectedly contracted in April for the third consecutive month, undermining hopes that the economy can resume growth after a contraction in the first quarter.
April’s 1.3 percent annual decline in household spending compared poorly with the median estimate for a 0.8 percent rise from a year ago and follows a 0.7 percent annual decline in the previous month.
Consumer spending accounts for more than half of gross domestic product. April’s decline in spending in April suggests the economy is on weak footing, decreasing the chance of achieving sustainable inflation.
“I still expect the economy to rebound in the second quarter, but if consumer spending continues to weaken then I may revise down my expectations,” said Daiju Aoki, regional chief investment officer for Japan at UBS Securities.
“Household spending was surprisingly weak and consumer confidence is flattening.”
Household spending fell in April as consumers spent less on home utilities, cars, domestic travel, and leisure, Tuesday’s data showed.
Japan’s economy contracted in the first quarter on weak investment, consumption, and exports. That ended eight straight quarters of growth, which was the longest continuous expansion since the 1980s bubble economy.
Many economists expect Japan’s gross domestic product to resume expansion in the second quarter, but a smaller-than-expected increase in industrial production and a build up of inventories in April has raised some doubt about the strength of the economy.
Continued weak spending would make Japan’s economy more dependent on export demand, which is at risk from the U.S. government’s protectionist trade policies.
The household spending data also dampened expectations that the Bank of Japan can achieve its 2 percent inflation target, an important benchmark in the central bank’s campaign to energize the economy and prevent a return to deflation.
Reporting by Stanley White; Editing by Eric Meijer