Japan's tepid July household spending adds to economic recovery doubts

By Kantaro Komiya and Daniel Leussink

TOKYO (Reuters) - Japan's household spending grew less than expected in July as a resurgence in COVID-19 cases hindered consumer activity, throwing broader economic recovery prospects into doubt.

The world's third-largest economy is struggling to shake off the impact of the coronavirus pandemic, which forced the government to impose new state of emergency restrictions that now cover about 80% of the population.

Household spending rose 0.7% year-on-year in July, after a revised 4.3% fall in June, government data showed on Tuesday. The modest rise, which partly reflects a sharp contraction in July 2020 as consumers delayed spending amid the initial pandemic shock, was weaker than a median market forecast for a 2.9% gain in a Reuters poll.

The month-on-month figures showed a 0.9% contraction in July, the third straight month of decline, the government data showed, dashing expectations for 1.1% growth.

"Face-to-face leisure services stayed weaker with worsening COVID-19 infections and the reinstatement of state of emergency curbs in Tokyo," said Masato Koike, an economist at Dai-ichi Life Research Institute.

"Going forward, the tug-of-war between worsening infections and vaccination will keep services spending volatile."

Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute, said continued infections could have dragged private consumption even lower in August.

Spending on food, leisure and transportation rose year-on-year while spending on consumer electronics, utility payments and face masks fell.

Separate data on Tuesday showed inflation-adjusted real wages in July rose 0.7% from the same month a year earlier, though the gain was also because of a flattered comparison with last year's steep pandemic-driven drop.

Other government data on Tuesday showed the coincident indicator index, which consists of various economic indicators, fell 0.1 point from the previous month to 94.5 in July as semiconductor supply woes and COVID-19 outbreak in other parts of Asia hit Japan's factory output and exports.

These mixed results were unlikely to dispel worries that Japan's economy is at risk of slowing down in the third quarter, as explosive growth in COVID-19 cases at home and in other parts of Asia weighs on consumer and corporate activity.

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Revised gross domestic product (GDP) data on Wednesday is expected https://www.reuters.com/world/asia-pacific/japan-seen-upgrading-q2-gdp-stronger-business-spending-2021-09-03 to show the economy grew faster than initially reported in the second quarter, helped by stronger business spending.