Japan spending picks up, inflation remains tepid

The upturn is a boost for Prime Minister Shinzo Abe, who has been trying to ignite growth in the world’s third largest economy for more than four years with mixed results.

Japan’s prospects have recently improved on the back of solid exports, with investments linked to the Tokyo 2020 Olympics also giving the economy a shot in the arm.

But consumer spending has remained a concern while the Bank of Japan has struggled to lift inflation despite years of aggressive monetary easing.

Household spending in June rose 2.3 percent year-on-year, according to the internal affairs ministry, widely beating market expectations for a rise of 0.5 percent and stemming a losing streak dating back to March 2016.

Spending on housing repairs, linked to high demand for air conditioners in hot weather, and automobile purchases were major contributors, the data showed.

A separate report from the ministry showed nationwide inflation edged up 0.4 percent year-on-year, after stripping out the volatile costs of fresh food.

It was the sixth consecutive month of increase but the recent gains have largely been due to higher energy costs rather than a broad-based rise backed by stronger consumer spending.

“Inflation remains very low despite the continued tightening of the labour market,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“The key point is that inflation is set to remain well below the Bank of Japan’s lofty forecasts” even after it lowered them recently, he wrote in a commentary.

Government data showed the job market remains tight with unemployment at its lowest level in more than 20 years.

The jobless rate sank to 2.8 percent in June from 3.1 percent in May, while the ratio of job offers to job seekers remained at four-decade highs.

The latest inflation readings fall well short of the BoJ’s two percent inflation target — seen as crucial to conquering falling prices blamed for holding back the economy.

The bank last week once again delayed its timetable for hitting the target. It now expects to achieve the two percent objective in the year to March 2020.

Officials had in 2013 originally set a two-year timeline when unveiling the bank’s massive monetary easing programme as part of Abe’s push to kickstart growth, with government spending and red-tape cuts among other measures.