Japan spending slump casts doubt on central bank optimism

Spending by Japanese households slumped unexpectedly in April and consumer inflation came in roughly flat, casting doubt on the central bank's view that a steady economic recovery will help move inflation toward its ambitious 2 percent target.

A shopper is seen between price boards at a drug store in Tokyo, Japan, May 28, 2015.

Households spent less on leisure and dining out even as the jobless rate fell to a 18-year low, underscoring the challenge of eradicating the sticky "deflationary mindset" that has beset Japan for nearly two decades.

While analysts expect consumption to pick up in coming months, lingering weakness will keep policymakers under pressure to underpin a fragile economic recovery.

"It's a pretty gloomy number ... Consumption may take longer than expected to pick up," said Taro Saito, director of economic research at NLI Research Institute.

"The mood is good but wages haven't risen much yet. It might take until around summer for consumption to clearly rebound."

Household spending fell 1.3 percent in the year to April, data showed on Friday, disappointing analysts who expected a 3.1 percent gain from the same month a year ago - when Japan raised the sales tax.

Spending also fell 5.5 percent from the previous month. While consumers spent more on food and durable goods, they refrained from eating out partly due to April's rainy weather.

A weak yen and rising hotel charges also discouraged households from traveling, highlighting the Bank of Japan's (BOJ) challenges as it tries to accelerate inflation without scaring skittish consumers

"Many companies posted record profits, wages are increasing and stock prices are rising...but that's not enough for middle-class consumers to boost spending," Hiroshi Ohnishi, president of luxury department store operator Isetan Mitsukoshi Holdings (3099.T), said at an earnings announcement earlier this month.