Japanese household spending logs biggest drop in 35 months in January

TOKYO (Reuters) -- Japanese consumer spending in January fell by the most in 35 months, data showed on Friday, although a government official blamed one-off factors and played down the impact on broader consumption trends.

Household spending in January decreased by 6.3% from a year earlier and was down for the 11th straight month, the Internal Affairs Ministry data showed. That was worse than the median market forecast for a 4.3% decline and marked the biggest drop since February 2021.

On a seasonally adjusted, month-on-month basis, spending fell 2.1%, versus an estimated 0.4% increase.

The fall was due to decreases in new car purchases amid factory suspensions, lower energy bills due to warm weather and the backdrop of higher spending in the same month last year from post-pandemic travel subsidies, the Internal Affairs Ministry official said.

The numbers came amid growing market expectations that the Bank of Japan could exit negative interest rates as early as this month, despite some pockets of weakness in the economy.

Although inflation put downward pressure on food and travel spending, it did not contribute to the further drop in January household spending from the previous month, the official added.

Some economists are hopeful that consumer spending will gradually recover.

"The downward pressure on consumption will ease in the future, with the extent of [the] drop in real wages gradually narrowing as price inflation settles down and wage increases continue," said Masato Koike, an economist at Sompo Institute Plus.

Separate data released on Thursday showed Japanese real wages in January shrank for the 22nd month in a row, but at the slowest pace in more than a year on weakening price pressures.

Japan's economy stumbled into a