By Daniel Leussink
TOKYO (Reuters) – Japan’s household spending rose for an eighth month in July, albeit at a slower-than-expected pace, offering a warning about consumption in an economy already struggling with weak external demand amid the bitter U.S.-China trade war.
Risks from a global slowdown and the trade standoff between the United States and China, the world’s two largest economies, are threatening economic growth and have added pressure for the Bank of Japan to expand stimulus.
Household spending in July increased 0.8% from a year earlier, but the pace of growth was slower than a 2.7% rise for June and fell short of the median forecast for a 1.1% gain, government data showed on Friday.
Despite the slower pace of growth, the rise marked the longest run of expansion since comparable data became available in 2000, and points to resilience in domestic demand ahead of a scheduled sales tax hike to 10% from 8% next month.
From the previous month, household spending slipped 0.9% in July, which compared with a median forecast for a 1.3% decline.
Fewer purchases of air conditioners, refrigerators, food and electricity slowed the pace of spending, the data showed, which officials attributed to cooler weather.
“In July, the rainy season was long and…temperatures were really low, especially in the second half of the month,” a government official said at a briefing.
Japan’s economy has benefited from strength in household consumption and capital expenditure this year, growing an annualized 1.8% in the second quarter largely thanks to those sectors less affected by slowing trade.
But concerns about the outlook remain. Separate data showed real wages in Japan adjusted for inflation slipped for the seventh month in July, pointing to potential trouble for consumer and business sentiment ahead.
“The fall in wages in July was driven by a slump in bonus payments,” Marcel Thieliant, senior Japan economist at Capital Economics, wrote in a note.
“Wage growth should rebound toward 1% over the coming months.”
There are also worries weakness in manufacturing, following an eight-month slide in exports, could spread to other parts of the economy, casting a cloud over the outlook.
Analysts have warned the economy may lose steam after the sales tax hike, threatening to leave the world’s third-largest economy without a growth driver unless global demand picks up.
Expectations have risen the Bank of Japan will ease further after the central bank at its last policy meeting committed to expanding stimulus if a global slowdown is delayed and threatens to derail Japan’s economic recovery.
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