Japan’s household spending jumped in August as bigger bonuses boosted consumption, suggesting that robust domestic demand could help offset the ill effects of escalating trade frictions.
The spending in the world’s third largest economic country rose at the fastest annual pace in three years, government data showed on Friday.
The upbeat data may moderate some analysts’ fears that the economy may slow or even contract in the third quarter (Q3), when Japan was hit by heat waves, heavy rain, typhoons and an earthquake.
But a separate central bank survey showed households were gloomier about the economy than three months ago, highlighting the fragile nature of Japan’s recovery.
Household spending rose 2.8 per cent in August from a year earlier, confounding market expectations for a 0.1 per cent fall and increasing at its fastest since August 2015, the data showed.
It was the second straight month of gains following a 0.1 per cent rise in July, reports Reuters.
The government upgraded its assessment on household spending, saying it was “picking up.” In July, it said spending was roughly flat.
Consumption was recovering from a slump seen earlier this year as households spent bonuses on pricier items like automobiles and air conditioners, a government official told reporters in a briefing.
Many analysts had expected spending to fall in August on the view that unusually hot weather and a string of typhoons were likely to discourage households from shopping or dining out.
A tightening job market has gradually increased household income and helped underpin household spending, which makes up roughly 50 per cent of Japan’s economic activity.
But consumption has failed to gain enough momentum to prod companies into raising prices, keeping inflation distant from the Bank of Japan’s 2 per cent target.
Solid growth in consumption is considered crucial for premier Shinzo Abe, who reshuffled his cabinet after winning a ruling party leadership race last month, to proceed with a scheduled increase in the sales tax next October.
While the strong household spending data offers some relief to policymakers, various risks cloud the economic outlook.
Multiple natural disasters slowed factory output and, together with escalating trade frictions, hurt business confidence in the third quarter.
Separate data showed Japan’s inflation-adjusted real wages fell in August for the first time in four months, suggesting that consumers may start to cut back on discretionary spending as rising gasoline costs push up living costs.
Many Japanese companies pay summer bonuses in June or July, which tend to inflate wage surveys in these months.
The government plans to compile an extra budget for disaster relief, though any spending likely would not be big enough to have a sizable impact on the economy.