November 27, 2015 / 2:58 AM / 4 years ago

Japan spending slumps even as unemployment hits 20-year low

TOKYO (Reuters) - Japanese household spending unexpectedly fell in October for a second straight month, even as unemployment hit a two-decade low, underscoring the challenge facing premier Shinzo Abe in persuading reluctant companies to boost wages.

Consumer price inflation fell for the third consecutive month, but after excluding the effect of lower energy bills, household costs rose.

The data underlines the difficulty Abe faces as he campaigns for companies to spend more of their record profits on wages and investment, in the hope of pulling Japan out of recession.

“Job offers are surging but the average sum each employee is earning isn’t rising much. That’s why household income isn’t increasing and consumption remains weak,” said Taro Saito, senior economist at NLI Research Institute.

“It’s quite difficult to generate a positive economic cycle just by applying political pressure on companies.”

The jobless rate fell to 3.1 percent in October from 3.4 percent in September, hitting the lowest level since 1995, government data showed on Friday.

Household spending fell 2.4 percent in October from a year earlier, against market forecasts for a 0.1 percent rise, and disposable income slid 0.3 percent, separate data showed.

The core consumer price index (CPI), which excludes volatile fresh food but includes oil costs, fell 0.1 percent in the year to October, matching a median market forecast.

The decline was predominantly due to the effect of falling energy costs, which the Bank of Japan has said it will look through in determining whether additional monetary easing is necessary to achieve the inflation target.

The BOJ’s new indicator that strips away the effect of energy costs showed consumer prices rose 1.2 percent in the year to October, underscoring its view a broad uptrend in prices was intact.

Japan relapsed into recession in July-September and consumer prices have slid on oil price falls and weak household spending, casting doubt on the BOJ’s view that a solid economic recovery will accelerate inflation to its 2 percent target by early 2017.

Nearly half the analysts polled by Reuters expect the BOJ to increase monetary stimulus in January, when continued declines in oil costs may force the central bank to cut its quarterly inflation forecasts yet again.

Slideshow (2 Images)

Abe made a widely expected decision on Friday to roll out additional fiscal spending - the latest attempt by Tokyo to revitalize a sputtering economy.

“It’s important for people to realize that the government is focused on achieving the virtuous cycle of growth and helping people who have not benefited so far,” Economics Minister Akira Amari told reporters on Friday.

Additional reporting by Sumio Ito, Stanley White and Tetsushi Kajimoto; Editing by Eric Meijer and Jacqueline Wong

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