Japan's household spending unexpectedly falls as firms cut bonuses

TOKYO (Reuters) - Japan's household spending unexpectedly fell in June as cuts to summer bonuses hit consumption, data showed on Friday, adding gloom to an economy already struggling with the hit from a resurgence in coronavirus infections.

The figures underscore the challenge policymakers face as they seek to support a fragile economic recovery, while battling a spike in Delta variant cases that has forced Japan to expand state of emergency curbs during the Olympic Games.

Household spending fell 5.1% in June from a year earlier, government data showed, confounding market forecasts for a 0.1% gain and marking the first drop in four months.

Compared with May, household spending fell 3.2%, reinforcing the need for export-driven growth as domestic demand remains weak due to the state of emergency curbs.

"Unless much tighter restrictions are imposed, consumption won't slump from already low levels. But it also likely won't rebound until much later in the year," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"We can't expect a rebound in July-September economic growth, so a solid recovery will have to wait until the final quarter of this year at the earliest."

Separate data showed wages fell 0.1% in June from a year earlier, marking the first annual decline in four months after a 1.9% rise in May.

Special payments in June, which mostly account for summer bonus payments, were down 2.3% from the previous year, as firms hit by the pandemic slashed compensation.

The weakness in spending and wages casts doubt on the Bank of Japan's forecast that the benefits of an export-driven recovery will spread to households, and add to an expected boost to consumption from steady progress in vaccinations.

Japan's economy has emerged from the doldrums as solid exports offset weak domestic demand, though growth lags other advanced nations as slow vaccinations weigh on consumption.

The country has expanded curbs lasting through August to deal with a spike in infections, dashing policymakers' hopes for a strong rebound in July-September economic growth.

Japan's preliminary April-June gross domestic product (GDP) data, due on Aug. 16, will likely offer clues to what extent exports and government spending have offset the hit to service consumption from the pandemic.

(Reporting by Leika Kihara; Editing by Sam Holmes)

By Leika Kihara and Kaori Kaneko