Japanese households spending more, unemployment down

TOKYO - Japan's thrifty households boosted their spending last month while unemployment fell, data showed Tuesday, as the International Monetary Fund (IMF) gave a thumbs-up to Tokyo's economic policy blitz.

The 3.7 per cent jump in spending - the best result in six months - was far beyond economists' expectations of a 0.5 per cent rise, and comes days after Japan hailed separate consumer price data as showing the government was winning the war on deflation.

The latest spending figures and a stronger labour market are key yardsticks for the success of Prime Minister Shinzo Abe's policy blitz, dubbed "Abenomics," which is squarely aimed at stoking growth in the world's third-largest economy.

The on-year spending jump was likely driven by expectations over a sales tax hike approved earlier this month as consumers looked to buy goods cheaper before the increase.

There are fears that the rate rise, designed to bring down Japan's staggering national debt, could derail Japan's recovery.

But Tokyo has been under heavy pressure to chop a debt mountain that is proportionately the heaviest burden among rich countries at more than twice the size of the economy.

Anoop Singh, director of the Asia and Pacific Department at the IMF, on Tuesday repeated calls for Japan to get its finances in order while he described Abe's almost year-old growth plan as "so far, so good".

"The first phase of Abenomics is improving confidence, jump-starting the recovery," he told a news briefing in Tokyo Tuesday, adding that wage hikes were "essential" to exiting deflation.

Abe has pledged to drag Japan out of its 15-year deflationary spiral by stoking price rises through lifting wages and consumption.

While falling prices may sound like a good thing, they encourage consumers to put off spending in the hope they will be cheaper down the road, which hurts producers.

Cautious firms have been reluctant to usher in widespread pay or capital spending hikes after years of lacklustre consumer spending weighed on their expansion.

Still, upbeat data from the internal affairs ministry Tuesday showed the average income among working households rose 0.9 per cent in September, while the unemployment rate fell to 4.0 per cent last month, down 0.1 percentage point from August.

Credit Agricole economist Yoshiro Sato said the latest figures showed Japan's labour market was tight and predicted the jobless rate "would stay comfortably low supporting steady consumption".