Japan's Ministry of Internal Affairs and Communications reported that household spending in August, adjusted for inflation, fell 3.1% year on year, marking a ninth consecutive monthly decline, as persistent inflation continues to weigh heavily on consumers' purchasing power even as wages rise. The figure was a smaller drop than the 3.6% economists had expected. Household spending data is a key gauge of private consumption, which accounts for more than half of Japan's gross domestic product. This fragile spending has created challenges for the Bank of Japan's communications, as it may raise its policy interest rate again. Bank of Japan Governor Kazuo Ueda has repeatedly warned of the risk that inflation could accelerate, and investors widely expect the central bank to raise its policy rate once more before the end of the year. In addition, Japan's aging society is a factor, since the growing ranks of retirees do not benefit from wage growth.
Weak household spending amid persistent inflation keeps BOJ rate-hike expectations alive, pushing JGB 10Y yields higher.
