Japan's real household spending posted a second straight rise in January but at a much slower pace of 0.8% on year as many consumers slashed purchases of vegetables and fruits amid rising costs and shied away from buying appliances that were not in an urgent need for replacement. It followed an unexpected 2.7% jump and the first rise in five months in December, when consumers rushed to donate to prefectures that offer generous free goods and services in return by the Dec. 31 tax year deadline.

The core measure of real average household spending (excluding housing, motor vehicles and remittance), a key indicator used in GDP calculation, fell 0.8% on the year after rising 1.4% the previous month, when the overall spending surged 2.7%.

On the month, real average expenditures by households with two or more people plunged a seasonally adjusted 4.5% (vs. consensus -1.5%) after rising 1.5% (revised down from +2.3%) in December and edging up 0.4% in November. Recent figures were revised in an annual update to seasonal adjustments.

The average real income of households with salaried workers dipped 1.1% on year in January for the first drop in four months after rising 2.9% in December as rising costs of living continued to hurt many households. The average real income of the primary bread earners was up just 0.2% for the fourth straight gain after rising 2.8% the previous month while their spouses' average income marked its first drop in 12 months, down 1.5%, following a 0.2% gain.

In nominal terms, the average household income grew 3.5%, slowing from recent increases of 7.2% in December, 4.1% in November and 3.7% in October.

In another set of data, total monthly average cash earnings per regular employee in Japan posted their 37th straight year-on-year rise, up a nominal 2.8% in January, after rising 4.4% in December. Base wages rose a solid 3.1% on year, from 2.6% the previous month. However, real average wages slumped 1.8% for the first y/y drop in three months after small gains of 0.3% gain in December and 0.5% in November.

Japan's real household spending is forecast to post a second straight rise in January, up a sharp 4.0% on year, led by strong demand for winter clothing, heaters and other seasonal goods amid record snowfall in many regions. It is also expected to be underpinned by a rebound in auto sales compared to a year earlier, when Toyota Motor suspended production and shipments of some models over safety inspection scandals. Overall, however, high costs for necessities are keeping households wary of spending beyond necessities.

The year-on-year increase is seen accelerating from an unexpected 2.7% jump and the first rise in five months in December, when consumers rushed to donate to prefectures that offer generous free goods and services in return by the Dec. 31 tax year deadline.

On the month, real average expenditures by households with two or more people are expected to slip back 1.5% amid depressed real wages after soaring 2.3% in December, edging up 0.4% in November and surging 2.9% in October.

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.