Japanese household spending in June jumped the most since 2015 as job availability improved to a fresh 43-year high, in a sign the tightening labor market is helping push up wages and consumer spending — albeit gradually.
Underscoring stubbornly low inflation despite the tightening job market, core consumer prices rose just 0.4 percent in June from a year earlier, unchanged from the previous month and still far below the Bank of Japan's ambitious 2 percent target.
The batch of data points to a steady growth in the Japanese economy, the world's third largest, in the April-June quarter, supporting the central bank's upbeat economic view.
The BOJ last week left monetary policy steady but once again pushed back the timing for hitting its price goal, highlighting the gap between steady growth and weak inflation and reinforcing the view that it will take some time to scale back its massive stimulus.
Japan's economy expanded at an annualized 1.0 percent at the start of this year, posting a fifth straight quarter of growth on robust exports and a pick-up in private consumption.
Domestic demand holds the key for a sustained expansion as net exports - or exports minus imports - likely trimmed gross domestic product growth in the April-June period, analysts say.
In an encouraging sign for private consumption, which comprises some 60 percent of the economy, household spending rose 2.3 percent in the year to June, up for the first time in
16 months and the biggest annual gain since August 2015.
That compared with economists' median estimate of a 0.6 percent gain in a Reuters poll, data by the Ministry of Internal Affairs and Communications showed on Friday.
Retail sales also grew 2.1 percent in the year to June, separate data showed.
Firmer consumption data indicates that the tightening job market is helping improve wages and household incomes, which in turn may stimulate consumer spending.
The jobless rate unexpectedly fell to 2.8 percent in June, while the availability of jobs rose for the fourth straight month to hit the highest since February 1974, separate data showed.
Still, Japan's consumer prices are stubbornly weak because of companies' wariness about raising prices for fear of losing cost-sensitive customers, accentuating the challenge facing the BOJ in accelerating inflation towards its 2 percent target.
The rise in the core consumer price index (CPI), which includes oil products but excludes fresh food prices, followed a 0.4 percent gain in May and matched a median market forecast.