Japan household spending sees first rise in 14 months

Consumers walk in a shopping arcade in Tokyo on January 29, 2016. Japan posted a string of tepid data including lacklustre inflation and a drop in household spending and factory output, shortly before the Bank of Japan wraps up its first policy meeting of the year. AFP PHOTO / TOSHIFUMI KITAMURA (Photo by TOSHIFUMI KITAMURA / AFP)

TOKYO — Japan’s household spending rose in April for the first time in 14 months, official data showed Friday, as wages grew at the fastest pace in three decades.

The figure was up 0.5 percent on-year with more money spent on education, clothes, and transport, including cars, according to the internal affairs ministry.

Eyes are now on a decision next week by the Bank of Japan, which in March hiked interest rates for the first time since 2007 but indicated it would maintain its ultra-loose monetary policy.

Wage growth is a key part of the BoJ’s strategy as it targets demand-driven inflation of two percent — as opposed to prices rising on the back of unstable, temporary factors such as the war in Ukraine.

READ: Japan’s economy shrinks on weak consumer spending, auto woes

Although “wage growth is not keeping up with price increases, it’s expected that consumer spending will pick up as the employment and income environment improves”, government spokesman Yoshimasa Hayashi said Friday.

Japan’s largest business group Keidanren last month put the rate of wage increases among major companies at 5.58 percent — the first time it has topped five percent in 33 years.

While the United States and other major economies have battled sky-high inflation, price rises in Japan have been more moderate.

Moderate price hikes

In April, the pace of Japanese inflation slowed to 2.2 percent as gas bills fell.

READ: Japan inflation slows to 2.2% in April

The BoJ’s long-standing, ultra-loose monetary policies are designed to banish stagnation and deflation from the world’s number-four economy.

But they have made the central bank an outlier among its global peers, which have aggressively increased borrowing costs to tackle sky-high inflation.

Masamichi Adachi and Go Kurihara at UBS said last month that in Japan, the “prospect of consumption looks rather good” as “nominal wage growth is expected to accelerate”.

While they do not expect another rate hike at the bank’s meeting next week, “we cannot rule out the possibility of the BoJ’s policy change to tightening direction in (the) next couple of months”.

“Without any policy change, public criticism of the Bank could heighten,” they added.