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Japan's economy just received some rare good news as household spending rebounds

Photo by Jamie Squire/Getty Images

There was some rare good news for the Japanese economy on Tuesday with household spending figures for February topping expectations.

According to the government, household spending rose by 1.2% in the year to February in price adjusted terms, beating the median market forecast for a decline of 1.5%.

The increase, the first annual gain since August 2015, was a sharp improvement on the 3.1% annual contraction seen in January.

Spending on medical care, cars, eating out and mobile phone plans led the improvement seen in February.

Though household spending returned to growth, data on retail sales and the labour market came in below market expectation, adding to the disappointing core consumer price inflation report for February released late last week.

In the year to February, retail sales grew by 0.5%, missing forecasts for an increase of 1.7%. Though well below market expectations, the figure was an improvement on the 0.1% decline previously registered in January.

Elsewhere, the news on the labour market also disappointed, with unemployment ticking higher and the jobs-to-applicants ratio both undershooting expectations.

The national unemployment rate rose 0.1% to 3.3% in February, missing forecasts for a steady reading of 3.2%.

Though it remains at the highest level seen in nearly three decades, the separate jobs-to-applicants ratio — simply the number of jobs currently available compared to the number seeking employment — held steady at 1.28, bucking expectations for a further increase to 1.29.

While both missed, the level of unemployment and increased job availability continue to point to tightening labour market conditions.

Despite the solid increase in household spending, and expectations for further gains to come, Hidenobu Tokuda, a senior economist at Mizuho Research Institute, suggests that the grounds for a further stimulus package from the government to bolster the Japanese economy are growing.

“I expect consumer spending to rise further, but the gains will be very moderate given low demand for durable goods,” Tokuda said in an interview with Reuters. “It would still make sense for the government to consider some form of stimulus, because it may want to act in response to concerns that the global economy is slowing.”

Earlier this month, the Bank of Japan (BOJ) suggested that “domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the household and corporate sectors,” adding “Japan’s economy is likely to be on a moderate expanding trend”.

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