Japan's household spending rises in 2013, but tax hike likely to weigh

Average spending by Japanese households in 2013 rose 1.1 percent in real terms to 251,576 yen on a price adjusted basis, marking the second consecutive year of increase, the Internal Affairs and Communications Ministry said in a report Tuesday.

The ministry said that increasing consumer demand, ahead of April's sales tax hike from 5 to 8 percent, helped spending rise by 2 percent from levels logged in 2012, but noted that the rise in consumption tax may dampen sentiment.

The government report showed spending on food and entertainment rose in the recording period, despite a 0.3 percent drop in average monthly incomes.

On a quarterly basis, household spending edged up a moderate 0. 5 percent in the last quarter from the quarter before, the ministry said, with the reading coming in below median economists' forecasts for a 0.7 percent increase on rising food and fuel prices and static salaries going into the latter half of 2013.

Government officials said that the tax hike in April will likely impact household spending, with economists adding that a state push for companies to boost regular salaries has yet to come to fruition and as such consumption is expected to diminish in the coming months.

Household spending is widely regarded as a key indicator for private consumption and the consumer confidence index for December coming in at 41.3, below the "boom-or-bust" 50 level, shows that more consumers feel"pessimistic"than "optimistic"about the months ahead.

The government's consumer confidence index is based on a five- point scale that measures how consumers see their living conditions, as well as three other categories, improving, declining or remaining roughly the same over the coming six months.