Japan's real household spending posted a sharper-than-expected drop on the year in December, down 1.3 percent versus the median forecast of a 0.4 percent dip, as more people subscribed to discount mobile communications plans and refrained from buying increasingly more expensive new smartphones, data released Tuesday by the Ministry of Internal Affairs and Communications showed.

Spending also posted a second straight fall on the month, down 2.1 percent (versus the consensus forecast for 0.4 percent rise), despite expectations for a slight rebound led by stronger demand for winter clothing and heating oil amid freezing temperatures toward yearend, indicating consumers were being frugal amid surging costs for food and utilities.

People have been spending less on groceries, particularly fish, compared to the earlier phase of the pandemic when households had cooked more at home to avoid contact. In addition, people also spent less on fish and alcohol in December as they avoided holding yearend parties in light of a fresh spike in Covid cases.

However, household expenditures showed a 0.4 percent rebound on quarter in the October-December period after falling 1.6 percent in July-September, indicating that private consumption supported an expected solid economic growth of around 0.5 percent (annualized 2.0 percent) in the fourth quarter measured by the gross domestic product after a slight 0.2 percent contraction (annualized 0.8 percent) in the third quarter.

In the absence of strict public health rules for the first time in three years, many households continued spending on domestic travel, using the government's discount program launched in October, while some people were cautious about stepping out as the numbers of coronavirus infections and deaths surged.

The Econoday Consensus Divergence Index stood at minus 5, just below zero, which indicates the Japanese economy is performing slightly worse than expected. Excluding the impact of inflation, the index was at plus 3.

In 2022, average spending rose 1.2 percent on the year, marking the second consecutive annual increase as more people dined out and traveled without strict public health rules, after rising 0.7 percent in 2021, slumping 5.3 percent in 2020, rebounding 0.9 percent in 2029 and slipping 0.4 percent in 2018.

The average real income of households with salaried workers posted the third straight year-over-year drop, down 0.4 percent (up 4.4 percent in nominal terms) in December after falling 0.3 percent (up a nominal 4.2 percent) in November and 0.9 percent (up a nominal 3.5 percent) in October and posting its first rise in six months in September with a small 0.2 percent gain (up a nominal 3.7 percent). The annual consumer inflation rate is above 4 percent as more firms are passing higher costs onto consumers.

The gradual pickup in nominal wages in Japan continued in December while real wages were flat after surging costs for daily necessities had caused a real drop in the previous eight months, data released Tuesday by the Ministry of Health, Labour and Welfare showed.

Total monthly average cash earnings per regular employee in Japan posted their 12th straight year-on-year rise, up a preliminary 4.8 percent on year on winter bonuses and a higher regular pay, after rising 1.9 percent (revised up from 0.5 percent) in November, 1.4 percent in October and 2.2 percent in September.

In real terms, average wages edged up a preliminary 0.1 percent on year for the first gain in nine months after falling 2.5 percent (revised up from a 3.8 percent plunge), 2.9 percent in October and 1.2 percent in September.

To calculate real wages, the ministry uses the overall consumer price index minus owners' equivalent rent, which surged 4.8 percent on year in December and rising 4.5 percent in November. It was well above the 4.0 percent rise in both the total CPI and core measure (excluding fresh food) for December.

Japan's real household spending is forecast to have posted a modest 0.4 percent drop on the year in December amid a spike in Covid cases after a surprise 1.2 percent slump in November caused by mobile phone bill payment timings and mild weather, but expenditures are seen rebounding 0.4 percent on the month as freezing temperatures boosted demand for winter clothing and heating oil.

In the absence of strict public health rules for the first time in three years, many households continued spending on domestic travel, using the government's discount program launched in October, while some people were cautious about stepping out as the numbers of coronavirus infections and deaths surged.

Household Spending is an important gauge of personal consumption, which accounts for roughly 55 percent of Japan's gross domestic product. It is part of the monthly Family Income and Spending Report.

The report looks at spending of households and gives a picture of consumer spending. Increases in household spending are favorable for the Japanese economy because high consumer spending generally leads to higher levels of economic growth. Higher spending is also a sign of consumer optimism, as households confident in their future outlook will spend more. The preferred number is the change from the previous year. The data are part of the family income and expenditure survey which is released at the same time as the employment and unemployment data.