Doubts over BOJ’s Optimism due to Weak Household Spending

Japan’s household spending unexpectedly slumped in April and consumer inflation was roughly flat, casting doubt on the central bank’s view that a steady economic recovery will help accelerate inflation toward its 2 percent target.  Households spent less on leisure, travel and dining out even as real income rose for the first time in 19 months and the jobless rate fell to a 18-year low, underscoring the challenges of eradicating the sticky “deflationary mindset” that has beset Japan for nearly two decades.

While analysts expect consumption to pick up in coming months, the lingering weakness will keep policymakers under pressure to take steps to underpin a fragile economic recovery.  “Sales of durable goods are still taking a hit, so the (effect of last year’s) sales tax hike is still having an impact,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co.

“The Bank of Japan doesn’t need to ease now, but data in the second half of the year has to improve.”  Household spending fell 1.3 percent in April from a year earlier, confounding a median market forecast for a 3.1 percent increase, government data showed on Friday.