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 percent in May from a year earlier thanks to Japan’s 10-day holiday, government data showed Friday.

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

From the previous month, it rose 5.5 percent for the month, which compared with a 1.4 percent contraction in April and the median estimate for a 1.2 percent gain.

The government raised its view on household spending for the first time in four months, saying it is “picking up,” an official said.

“Consumer spending in the April-June period is expected to have recovered from the previous month, which is likely to make up for some weakness in external demand,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“But there is a risk that consumer spending will worsen as sentiment weakens amid sluggish wage recovery and uncertainty over the economic outlook. Also a planned sales tax hike could dent spending after it is implemented.”

The strong growth in household spending in May was led by accommodation bills, mobile phone charges, transportation fees and electricity.

Separate data Friday also pointed to encouraging signs for the economy.

Japan’s coincident indicator index, which consists of a range of data including factory output, employment and retail sales, rose for a second straight month in May.

The government raised its assessment to say the index suggested the economy stopped worsening.

The Sino-U.S. 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 in Japan 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 percent this October as scheduled, unless there is a big economic shock on the scale of the collapse of Lehman Brothers.

(SD-Agencies)