Japanese household spend falls

tokyo — Japan’s household spending unexpectedly fell in July though the labour market continued to strengthen, offering some hope wage gains will soon accelerate and help the world’s third-biggest economy overcome a decades-long battle with deflation.

Many analysts expect the economy to extend its recovery at a healthy clip, with job availability at a fresh 43-1/2-year high in July and improving business confidence set to underpin corporate spending.

But firms face a dilemma even as the economy is on course for its second longest postwar expansion — rising labour costs that cut into their bottom line and pressure to attract price-sensitive shoppers with discounts.

“We’ll probably see a gap between companies that have the capacity and pricing power to raise prices and those that don’t,” said Mari Iwashita, chief market economist at SMBC Friend Securities.

“It’s not back to days of deflation when you win just by cutting prices. That’s good for the economy. But it means companies are faced with a more complex business environment.”

Household spending slid 0.2 per cent in July from a year earlier after hitting a two-year high in June, government data showed on Tuesday, confounding a median market forecast for a 0.7 per cent increase.

The jobless rate was flat at 2.8 per cent in July and 1.52 jobs were available per applicant, the highest since 1974, separate data showed, a sign the economy continued to enjoy what many analysts consider as near full employment.