Japanese Household Spending Overview

By Satoshi Sugiyama

TOKYO (Reuters) – Japanese household spending fell at a slower pace than forecast in October. While consumption trends remain soft, the Bank of Japan (BOJ) is expected to raise rates again to normalize monetary conditions after a decade of easy policy.

Some analysts believe a recovery in wages could lead consumers to spend more, prompting the BOJ to continue increasing borrowing costs.

"Even in this situation, the BOJ is saying that consumption is firm," stated Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute. He added that the BOJ will not revise its consumption assessment based solely on the latest data and that another interest rate hike at this month's meeting is possible.

Consumer spending declined by 1.3% in October compared to a year earlier, which was less than the median forecast of a 2.6% decline and better than September's 1.1% drop. On a seasonally adjusted month-on-month basis, spending increased by 2.9%, exceeding the expected 0.4% rise.

Economists have attributed the ongoing softness in consumption to rising prices and warm weather, which deterred seasonal apparel purchases.

Despite growing concerns about raising borrowing costs when the economy shows no clear signs of recovery, some economists suggest that the BOJ might still adjust rates. They reference a previous instance in March where the bank abandoned negative rates despite sluggish consumption data, followed by a rate hike in July.

Policymakers find reassurance in the average wage hike of 5.1% delivered by Japanese companies this year, the largest increase in three decades.

Separate wage data released on Friday also indicated that Japan's base salary surged at the fastest rate in 32 years in October, helping boost real wages after two months of decline.

Koya Miyamae, a senior economist at SMBC Nikko Securities, remarked, "Even if prices and consumption temporarily drop, as long as wages are rising, it is easy (for the BOJ) to say that the economy is on track."

Over half of the economists polled by Reuters last month expect the BOJ to raise rates again on Dec. 19.