Weak spending to show Japan consumers unconvinced by Bank of Japan's stimulus

Wed Feb 25, 2015 9:46pm EST
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By Leika Kihara

TOKYO (Reuters) - Japanese households cut spending further and retail sales fell for the first time in seven months in January, data on Friday is likely to show, a sign the central bank's radical stimulus has yet to convince consumers that inflation will take hold.

After limping out of recession in the final quarter of last year, the world's third-largest economy is showing signs of life as exports and output rebound on solid U.S. and Asian demand.

But the weak consumer mood has kept a lid on spending as wages have yet to increase enough to make up for the sales tax hike last April, casting doubt on the strength of the recovery.

Soft consumption is a headache for the Bank of Japan, which hopes its aggressive money printing will fuel expectations that prices will rise ahead and prompt households to spend more now.

"Household spending is recovering but only very moderately because income hasn't risen much yet," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

"There's no doubt the economy will recover as the lower cost of oil is clearly positive for growth. If March wage negotiations lead to higher base pay, that's also good for consumers. It just takes time for all these factors to help consumption," he said.

A slew of data on Friday will underline the patchy nature of Japan's economic recovery.

Factory output is likely to have risen 2.7 percent in January from December, a Reuters poll showed.   Continued...

Women carry shopping bags in the Dotonbori amusement district of Osaka, western Japan November 19, 2014. REUTERS/Thomas Peter