Japan household spending falls less than expected, jobless rate hits 21-yr low

People walk along a shopping street in the Harajuku area of Tokyo, Japan.
Carl Court | Getty Images

Japanese household spending fell less than expected in July and the jobless rate hit a two-decade low, offering some hope for policy makers battling to pull the world's third-largest economy out of stagnation.

But with the economy barely growing and inflation sliding further away from the Bank of Japan's 2 percent target, a majority of economists expect the bank to ease further next month, when it conducts a comprehensive review of the effects of its existing stimulus programme.

Household spending fell 0.5 percent in July from a year earlier, less than a median market forecast for a 0.9 percent fall, data by the Internal Affairs Ministry showed on Tuesday.

Separate data showed retail sales slid 0.2 percent in July from a year earlier, less than a median market forecast for a 0.9 percent drop.

The seasonally adjusted unemployment rate fell to 3.0 percent in July from 3.1 percent in June, hitting the lowest rate in more than 21 years and hovering near levels the central bank considers as full employment.

Japan's economy ground to a halt in April-June and analysts expect any rebound in the current quarter to be modest as weak global growth and the yen's 20 percent rise against the dollar this year hurt exports and capital expenditure.

Despite three years of heavy money printing by the BOJ, soft household spending and a strong yen pushing down import costs have kept inflation distant from the bank's 2 percent target.

Core consumer prices fell in July by the most in more than three years as more firms delayed price hikes due to weak consumption, keeping the BOJ under pressure to expand an already massive stimulus programme.

Follow CNBC International on Twitter and Facebook.