Japan's real household spending posted its 12th straight drop on the year in February as mild weather led to lower costs for heating, but the pace of decrease slowed to a 0.5 percent fall from a 6.3 percent slump in January, backed by the leap-year effect. Without the boosting effect of having this extra day of consumption, spending would have been down by a deeper 2.7 percent, closer to the median economist forecast of a 3.0 percent drop.

Easing but still elevated living costs have kept consumers frugal and new car purchases remained weak due to suspended vehicle output over a safety test scandal. Partly offsetting lower spending were higher tuition fees and medical costs but these factors are also squeezing households.

On the month, expenditures rose a solid 1.4 percent for the first increase in five months after falling 2.1 percent in January. It was much stronger than the median forecast of a 0.3 percent rise. Generally, consumers are seeking lower prices for goods and services including prevalent discount mobile phone plans while the Covid-era necessity has simplified and lowered costs for ceremonies.

The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, fell 0.8 percent on the year in February, similar to the 0.5 percent dip in overall spending.

Econoday's Relative Performance Index stands at minus 7, just below zero, which indicates the Japanese economy is performing largely as expected. Excluding the impact of inflation, the RPI is at minus 5.

The average real income of households with salaried workers posted the 17th straight year-over-year drop, down 2.5 percent in January (but up 0.7 percent in nominal terms), after a 2.1 percent fall in January (up a nominal 0.3 percent). The main bread-earner's real income in the average household marked the 14th straight year-over-year drop while the average spouse real income posted the first rise in 10 months.

Japan's real household spending is forecast to post its 12th straight drop on the year in February, down 3.0 percent, after a 6.3 percent slump in January, which was the largest drop in nearly three years. The leap-year effect and milder weather likely helped slow the decline but consumers are generally frugal amid elevated costs and car shipments have been delayed by Toyota group output suspension over a safety test scandal. Firms are raising wages at a faster pace but inflation is still eroding purchasing power. On the month, expenditures are forecast to rise 0.3 percent for the first increase in five months after a 2.1 percent slip.

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.