Japan's real household spending posted its second straight year-over-year drop in June, down 1.4 percent, but excluding volatile factors like home maintenance and car purchases, the core reading marked its first increase in 16 months, up 1.3 percent, as the killer heat wave boosted demand for air conditioners and refrigerators.

An unusually late start to the rainy season in many regions also propped up demand for beverages, snacks, eating out and summer clothing. The rare rise in the core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, followed a 3.4 percent dip in May and no growth in April.

The overall spending drop was larger than the median forecast of a 1.0 percent fall and followed an unexpected 1.8 percent slump in May. The decrease in June was led by lower spending on home maintenance and repairs, which fluctuate from month to month, but it was also due to the widespread move among cell phone users to switch to discount plans. Amid elevated costs, households have also trimmed discretionary spending, such as on hotels and transportation. They are also being crowded out by an influx of tourists from other countries who have higher purchasing power as the yen continued to slide until recently.

Compared to the previous month, real average expenditures by households with two or more people rose a seasonally adjusted 0.1 percent for the first rise in three months, after dipping 0.3 percent in May and slumping 1.2 percent in April. It was weaker than the median forecast of a 0.3 percent rise and came at the bottom of the forecasts that ranged from 0.1 percent to 1.0 percent gains.

Econoday's Relative Performance Index stands at plus 19, above zero, which indicates the Japanese economy is performing better than expected after outperforming with a wider margin recently. Excluding the impact of inflation, the RPI is at plus 47.

In another positive development, the average real income of households with salaried workers rose 3.1 percent in June after marking the first year-over-year increase in 20 months in May, up 3.0 percent, and falling 0.6 percent in April. In nominal terms, the average income grew a solid 6.5 percent following increases of 6.4 percent in May and 2.3 percent in April.

Japan's gross domestic product for the April-June quarter is forecast to post a modest 0.6 percent rebound on quarter, or an annualized 2.3 percent, after suffering its first contraction in two quarters in January-March with a 0.7 percent drop (annualized 2.9 percent). Consumption and business investment is expected to have picked up after having been hit by suspended output at Toyota group factories over a safety test scandal. Public works spending is also seen rebounding after a sharp drop.

Japan's real household spending is forecast to post its second straight year-over-year drop in June, down 1.0 percent, as consumers remain frugal amid elevated costs, but the decline is seen slowing from an unexpected 1.8 percent slump in May after April's slight 0.5 percent gain, which was the first rise in 14 months. A late start to the rainy season in many regions and hot weather boosted demand for air conditioners, beverages and summer clothing.

On the month, real average expenditures by households with two or more people are expected to mark a second consecutive rise, up 0.3 percent on a seasonally adjusted basis, after dipping 0.3 percent. Purchases of vehicles are gradually recovering after auto production and shipments were resumed in March but new cases of falsifying safety test results have led to a yet another output suspension, threatening to dampen overall consumption.

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.