By Satoshi Sugiyama and Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s consumer spending fell for the 13th straight month in March, creating challenges for policymakers who are seeking to drive stronger real wage growth, a prerequisite for additional central bank rate hikes.

Household spending fell 1.2% in March from a year earlier, official data released on Friday showed, against economists’ median forecast for a 2.4% drop and following a 0.5% decline in February.

“Weak consumption will likely keep the Bank of Japan waiting at least until October to confirm a virtuous cycle of wages and prices is in place before raising interest rates,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Unless the currency crisis breaks out to trigger capital flight, the BOJ won’t raise rates to defend the yen currency.”

On a seasonally adjusted, month-on-month basis, spending increased 1.2%, much bigger than an estimated 0.3% contraction and a 1.4% rise in February.

The weak figures came a day after labour ministry data showed real wages shrinking two years in a row, as the rising cost of living outpaced nominal wages despite the biggest pay hikes, mainly among major corporations, in about three decades.

“Consumption may have hit bottom, but the trend of thrifty consumers remains strong due to rising living costs likely being exacerbated by the yen weakening,” Minami said.

“As such the private consumption component of the first-quarter GDP data next week probably declined, causing the overall economy to contract at 1.2% annualised in the same period.”

Weak household consumption is a source of concern for policymakers who want to see sustained economic growth led by strong wage hikes and solid consumer spending.

Separate data on Friday showed Japan’s current account surplus widened to 3.40 trillion yen ($21.84 billion) in March.

That compared with economists’ median forecast for a surplus of 3.49 trillion yen in a Reuters poll.

For the fiscal year that ended March, Japan’s current account surplus was a record 25.339 trillion yen, reflecting a trade surplus, cooling commodity prices and hefty gains in primary income from direct investment overseas.

($1 = 155.7100 yen)

(Reporting by Satoshi Sugiyama and Tetsushi Kajimoto; Editing by Himani Sarkar, Sam Holmes and Sonali Paul)

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