Japanese households unexpectedly trimmed spending in October as wages rose modestly, pointing to continued weakness in consumption that could weigh on any rebound from an economic contraction in the third quarter.
Household spending fell 0.3 percent from a year earlier, the seventh decline this year, the ministry of internal affairs said. The median estimate was for a rise of 1 percent. Labor cash earnings rose 1.5 percent from a year earlier, versus an estimate of 1 percent, the labor ministry reported, but inflation ate up those gains and a bit more.
Consumer spending has been the missing link as the Bank of Japan has tried to stoke inflation and sustainable growth in recent years. Expectations that an historically tight labor market will lead to bigger pay increases and spending remain largely unfulfilled.
That weakness in consumer spending becomes a bigger risk for the BOJ as the outlook for exports, a key growth driver, turns murkier due to the U.S.-China trade war and slowing growth in China and other economies.
“Households aren’t really in the mood for shopping given slow wage growth and a tax hike scheduled for next year,” Shinichiro Kobayashi, an economist at Mitsubishi UFJ Research & Consulting, said before the results were released.
BOJ Governor Haruhiko Kuroda on Thursday noted that wage growth remains sluggish considering the labor market, but stuck with the central bank’s position that momentum toward 2 percent inflation is maintained. The BOJ holds a policy meeting Dec. 19-20.
Real wages, which are adjusted for inflation, fell 0.1 percent. The median estimate was for a fall of 0.3 percent.
Base salaries rose 1.3 percent.