TOKYO — Japan's household spending rebounded modestly in July as higher bonus payments pushed up real wages, offering policymakers some hope a sustained economic recovery and a tight job market are encouraging consumers to spend.
The data came as premier Shinzo Abe, who sought to reflate the economy with heavy monetary and fiscal stimulus measures, kicks off his campaign for another term as head of his ruling party in a leadership vote later this month.
A pick-up in consumption and wage growth could help the Bank of Japan make its case that inflation will gradually head toward its ambitious 2 percent target.
But escalating trade frictions cloud the outlook for the export-reliant economy, with reports U.S. President Donald Trump could be contemplating taking on Japan over trade.
"Consumption isn't necessarily strong. Capital spending is underpinning growth but may cool if exports slump," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
"Japan's economy is doing fairly well but remains vulnerable to external shocks. Consumption won't have the strength to offset any future slowdown in external demand."
Household spending rose 0.1 percent in July from a year earlier, government data showed on Friday, confounding a median market forecast for a 0.9 percent drop and rebounding after five straight month of declines.
Separate data showed Japanese workers' inflation-adjusted real wages rose 0.4 percent in July from a year earlier, marking a third consecutive month of gains.
The gain followed a revised 2.5 percent annual increase in June, the biggest gain in more than 21 years, as companies boosted summer bonus payments, the data showed.
The government revised up its assessment on household spending for the first time in more than a year, saying it was on a solid footing. That compared with the previous month's view that spending was weak.
While bad weather kept some consumers at home, higher summer bonuses prompted households to buy more cars, personal computers and smart phones, the data showed.
Still, many analysts say the wage growth is too low to fire up inflation to the BOJ's 2 percent target, with next year's scheduled domestic sales tax hike and uncertainty over global demand clouding the outlook.
"We expect the labour market to loosen once the tax has been raised, in particular if the US economy slows sharply. The upshot is that wage growth won't strengthen much further, denting the hopes of ever achieving the BOJ's 2 percent inflation target," said Marcel Thieliant, senior Japan economist at Capital Economics.
Japan's economy rebounded in the second quarter from a contraction in the first three months of this year thanks to robust business spending.
But consumption has lacked momentum as firms remain wary of raising wages, despite reaping record profits.
BOJ board member Goushi Kataoka warned that risks to Japan's economy were skewed to the downside due to the expected hit from next year's sales tax hike and trade woes.
Manufacturing activity in major Asian economies took a hit from weak export orders in August, a sign firms are starting to feel the pinch from trade frictions between the United States and China that could derail global growth.
(Reporting by Leika Kihara, additional reporting by Stanley White; Editing by Eric Meijer)