Japan's solid household spending in August bodes well for consumption

By Satoshi Sugiyama

TOKYO (Reuters) -Japanese household spending rose at a faster pace than expected in August, government data showed on Tuesday, with consumers feeling relatively upbeat in a promising sign for the recovery in private consumption.

The latest figures add to a string of data supporting the Bank of Japan's plans to keep raising interest rates despite the ruling party's selection of fiscal dove Sanae Takaichi as its chief, analysts say, putting her on course to become the country's first female prime minister.

Consumer spending rose 2.3% from a year earlier, up for the fourth consecutive month, internal affairs ministry data showed. It was well ahead of the median market forecast for a 1.2% rise.

On a seasonally adjusted, month-on-month basis, spending edged up 0.6%, versus an estimated 0.1% rise.

An increase in travel and transportation expenditure, partly a reflection of pent-up demand from the same month last year, contributed to the uptick in spending, an internal affairs ministry official said.

"We believe consumption is recovering in some respects," the official said.

Consumption and wage trends are also among key factors the BOJ is monitoring to determine the timing of the next rate hike.

Japan's ruling Liberal Democratic Party (LDP) on Saturday picked Takaichi as its head, spurring markets to price in the chance of big spending and reduce bets of a rate hike at the BOJ's next policy meeting later this month.

Still, the BOJ could proceed with raising borrowing costs given the pressure from the United States to correct the yen's depreciation and a need to tame rising import prices, said Masato Koike, senior economist at Sompo Institute Plus.

"The significant stock market rally triggered by Takaichi's election as LDP leader is expected to generate wealth effects and give a boost to consumer spending," he said.

The government raised its assessment of consumer spending for the first time since August 2024 in the latest monthly report, reflecting improvement in consumer sentiment following a tariff agreement with the U.S.

(Reporting by Satoshi Sugiyama; Editing by Chang-Ran Kim & Shri Navaratnam)

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