Household spending in Japan, in real terms, rose 4.7 percent on the year in May after falling 0.1 percent in April, well above the consensus forecast for an increase of 1.1 percent. Spending, in seasonally adjusted real terms, rose 4.6 percent on the month after dropping 1.8 percent previously, also well above the consensus forecast for an increase of 0.3 percent.

The average real income of households with salaried workers rose 0.4 percent on the year in May after no change in April.

Key forecast points:
--Japan's real average expenditures by households with two or more people remains sluggish in May, hit by an above-3% consumer inflation rate and a 2% drop in real wages. Spending on foodstuffs (including eating out) is showing a gradual recovery after a recent spike in fresh vegetable prices caused by last year’s bad weather has waned.
--Household spending is seen up a modest 1.1% y/y vs. -0.1% in April, +2.8% in March, with a few economists projecting a slight drop.
The eighth y/y decline in 12 months in April was caused by consumer preference to simplified lower-cost funerals and by lower spending on non-core factors such as gift money and funds sent to children studying away from home.
--Seasonally adjusted spending +0.3% m/m vs. -1.8% in April, +0.4% in March.

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.