The decline in Japanese household spending highlights the weak domestic demand signal.

Household spending in Japan unexpectedly fell for the first time in six months. The Bank of Japan is currently preparing to consider raising interest rates later this month, highlighting the fragility of domestic demand. Data released by the Ministry of Internal Affairs and Communications on Friday showed that household spending in October, adjusted for inflation, fell 3% year-on-year, primarily dragged down by reductions in transportation and housing expenses. Economists had previously expected the data to increase by 1%. Private consumption is a key component for the Bank of Japan to achieve its goal of a "virtuous economic cycle," in which wage growth will drive demand-led inflation. Domestic consumption has increased for three consecutive quarters, but the growth rate has been moderate. In its outlook report released in October, the Bank of Japan said that private consumption is currently likely to remain steady, and will gradually return to a "moderate uptrend" with continued growth in employee income. Although the negative growth data released on Friday will add some complexity to the Bank of Japan's next interest rate hike, it is expected not to alter this overall trend.