Japan's households start opening their wallets

Hiroshi Higuchi | Getty Images

Japan's households opened their wallets a bit wider than expected in May, with household expenditures jumping for the first time in more than a year.

Household expenditures rose 4.8 percent on year in May, topping a Reuters poll forecast for 3.4 percent and marking the first on-year increase since the country increased its consumption tax in April of 2014.

Some took the jump as a clear positive.

"Most people were extremely skeptical on the whole Japanese package. 90 percent of outside observers said there was no way a country in a state of decline for 20 years could turn itself around," Mark Matthews, head of research for Asia at Julius Baer, said in a phone interview. "These good numbers show there's some momentum in the economy."

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Japan's policymakers have struggled to kick start the economy after decades of deflation, with the Bank of Japan launching a massive easing program in 2013 as part of "Abenomics," Japanese Prime Minister Shinzo Abe's plan to return the country to growth.

But after a consumption tax hike to 8 percent from 5 percent in April of 2014, the economy got clobbered when consumers stopped spending, forcing the government to postpone a second sales tax initially due this October.

Other data released at the same time as the household expenditures were more muted. Japan's core consumer price index (CPI) rose 0.1 percent on-year in May, just a tad above a Reuters poll forecast for a flat reading and down from a 0.3 percent rise in April. The unemployment rate was steady at 3.3 percent in May, as expected.

Some of Japan's economic data has supported the recovery expectations, with gross domestic product (GDP) growth for the first quarter revised higher to an annualized 3.9 percent, up from 1.5 percent in the October-to-December quarter, amid better-than-expected capital spending.

To be sure, not everyone is buying into the recovery story.

"The big picture remains that there is still substantial spare capacity in the economy which is dragging down prices," Marcel Thieliant, a Japan economist at Capital Economics, said in a note Friday. "There are scant signs that the tighter labor market has resulted in stronger price pressure," he added, noting that the figure was slightly above expectations due to a rise in volatile fresh food prices. He expects prices will fall in the third quarter.

Thieliant also doesn't see much to get excited about from the household spending data.

The rise followed a sharp drop in April, he noted.

"Even if spending continued to rise by another 2 percent month-on-month in June, private consumption may therefore have stagnated last quarter," he said." The upshot is that GDP growth should have slowed sharply in the second quarter."

The Japanese yen held flat at around 123.59 against the U.S. dollar after the data.


—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1