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Japan household spending rises for fifth straight month in October

By Kaori Kaneko and Kantaro Komiya

TOKYO (Reuters) – Japan’s household spending rose for a fifth straight month in October from a year earlier, data showed on Tuesday, boosted by coronavirus cases Relief prompted more people to shop and eat at restaurants.

An improvement in consumer spending, which accounts for more than half of the economy, is seen as crucial to the country’s economic growth. However, the outlook is clouded by an acceleration in inflation amid a weaker yen amid a tepid wage recovery.

The country’s real wages fell by the most in seven years in October due to persistent inflation, separate data showed on Tuesday.

“Consumer spending is likely to remain stable this year as the normalization of social and economic activities progresses, although higher prices have had some impact on spending,” said Koya Miyamae, senior analyst at SMBC Economist at Nikko Securities.

He also said the impact of rising prices would be widespread next year, while the recovery in spending would be slower.

“We expect wages to rise to some extent next year, but consumer inflation is expected to remain around 2%,” he added. “A faster pace of inflation than wages would also weigh on spending.”

Household spending rose 1.2% in October from a year earlier, slightly better than the median estimate of 1.0% by economists, government data showed.

Compared to the previous month, spending rose 1.1%, rising for the second straight month. Analysts had expected a 1.5% increase for the month.

Consumption is also supported by travel subsidies provided by the government to revive the tourism industry which is starting to recover from the COVID-induced slump -19 Pandemic.

But more price increases for groceries and household items could prompt consumers to rein in spending.

Japan’s Kyodo News Agency reported on Tuesday that Japanese Prime Minister Fumio Kishida said that whether Japan can achieve a virtuous circle of economic growth and distribution will depend on the annual wage negotiations next spring.

Core consumer prices rose 3.6% in October, with inflation hitting 40 year highs, driven by a weaker yen and higher import costs . While core consumer inflation topped the BOJ’s 2 percent target for the seventh straight month in October, weak wages and service prices have made the central bank cautious about unwinding stimulus.

Japan’s real wages, a key Labor Ministry data, showed a gauge of consumer purchasing power fell 2.6% year-on-year in October, the biggest drop since June 2020 .

Rising prices for food and energy costs and rising coronavirus infections also hit consumer sentiment in November. Last month, Japan’s consumer confidence index fell to its lowest level since June 2020.

Japan’s economy unexpectedly shrank at an annual rate of 1.2% in the third quarter, the first decline in a year, hit by inflation and a global slowdown. Analysts expect the economy to rebound at an annualized rate of 3.1% in October-December, according to a Reuters poll conducted late last month.

trillion yen ($285.4 billion) economic plan supported by

extra budget trillion yen.

($1=40.2020 yen)

(This story has been refiled to remove irrelevant words in paragraph 3)

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