August outlays fell 3.1% from a year earlier after inflation, a smaller drop than the 3.6% economists expected. The monthly gain was only 0.1%, and the government is hunting for money to fund a cut in the consumption tax on food.
Japanese households are earning more in real terms. They are still not spending it.
Inflation-adjusted spending by households of two or more people fell 3.1% in August from a year earlier, the internal affairs ministry said Friday. Economists had expected a 3.6% decline, the same size as July's drop. It was the ninth straight monthly fall. On a seasonally adjusted basis, spending rose 0.1% from July, short of the 0.5% gain forecast.
Data released on Wednesday showed real wages rose for an eighth consecutive month in August.
Inside the survey
Average monthly spending came to ¥310,975, down 1.0% in nominal terms. Weather played a part: a cooler, wetter month cut spending on air conditioners by 23.2% and electricity bills by 7.8%. Spending on food fell 1.4%, its third straight decline, and outlays on culture and recreation dropped 4.3%.
The same survey found real income for salaried households down 0.9% from a year earlier, a different picture from the national wage statistics. The two series cover different groups, and the gap between them is one of the reasons the spending data are hard to read.
"Even though wages are rising, the number of retirees is increasing, too, and they do not benefit from wage increases," said Harumi Taguchi, principal economist at S&P Global Market Intelligence.
The fiscal response
Separately, the government is relaunching a review of 201 special-purpose funds, holding about ¥7 trillion, to pay for a planned cut in the consumption tax on food. A lower tax on groceries would act directly on the category where households have been cutting back.
The Bank of Japan
The data arrive as the Bank of Japan weighs further rate increases. Governor Kazuo Ueda has repeatedly warned of upside risks to inflation. Policymakers have been looking for evidence that wage gains are feeding into consumption, and nine months of falling real spending alongside eight months of rising real wages is the opposite of that sequence so far.
The yen traded near 158.2 per dollar early Friday, slightly weaker on the day.
Two views
One reading is that consumption is stabilizing. The annual decline narrowed from 3.6% to 3.1%, spending has risen two months in a row on a seasonally adjusted basis, part of August's weakness was weather, and real wages are still climbing.
A second reading is that the wage recovery is not reaching enough households. Pensioners do not benefit from pay increases, salaried households' real income fell in the same survey, food prices are still rising, and a 0.1% monthly gain is a fifth of what was expected.
Next data
Japanese markets are closed Monday for a holiday. September spending and wage data, and the design and timing of the food tax cut, will show whether the narrowing decline turns into growth. The Bank of Japan's next policy decision will show how much weight it puts on wages versus spending.