Japan Household Spending Up 4.0% Year-On-Year In May

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TOKYO (Reuters) - Household spending in Japan rose at the fastest pace in four years in May, in a sign improving domestic demand will offer some support for an economy facing growing external pressure.

A recovery in private consumption is seen as vital in Japan's fight against deflation, which has made companies reluctant to pass on rising costs to households.

Household spending grew 4.0% in May from a year earlier thanks to Japan's 10-day holiday, government data showed on Friday.

It rose at the fastest pace since May 2015 and was much stronger than the median forecast for a 1.6% increase.

From the previous month, it rose 5.5% for the month, which compared with the median estimate for a 1.2% gain.

The U.S.-China trade dispute has clouded the outlook for the export-reliant economy, and the concern is that a hit to business and consumer confidence could affect overall domestic consumption and choke growth.

Some policymakers also worry a proposed tax hike could add to the pressure on growth as a previous tax increase in April 2014 dealt a blow to consumers and triggered a deep economic slump.

Japanese Prime Minister Shinzo Abe has repeatedly said he will raise the sales tax to 10% this October as scheduled, unless there is a big economic shock on the scale of the collapse of Lehman Brothers.

The Bank of Japan is counting on an improvement in consumer spending to achieve its elusive 2% inflation target, having failed to fire up consumer prices despite years of heavy money printing.

The central bank last month kept monetary policy steady but Governor Haruhiko Kuroda signaled a readiness to ramp up stimulus if global pressure on the economy intensifies.

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