Japan’s consumer spending falls by unexpectedly sharp 3.6%

Japanese consumers sharply reduced their spending in July, sending household expenditure down 3.6% from the same month a year earlier. The decline marked the steepest drop in two and a half years and the eighth consecutive monthly fall.

Government data showed that households spent more on entertainment and household goods, but saved on food and transport. Analysts attributed the pullback in part to rising living costs.

“Although high wage increases were achieved again in this year’s spring wage negotiations, pressure on consumption is likely to increase as higher prices begin to have a greater impact,” said Masato Koike, a senior economist at Sompo Institute Plus.

The figures will receive close attention from the Bank of Japan, which is due to decide later this month whether to raise interest rates. Core inflation in Tokyo, an early indicator of nationwide price trends, accelerated for a third consecutive month in August.

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Although high wage increases were achieved again in this year’s spring wage negotiations, pressure on consumption is likely to increase as higher prices begin to have a greater impact.