UPDATE 2-Japan's Nov household spending unexpectedly rose

* Nov household spending +1.1% yr/yr, beating f’cast

* Household spending rises for 2nd straight month

* Household spending sees 1st m/m drop in 4 months

* Tokyo area coronavirus emergency likely to hurt spending (Adds analyst comments, details)

TOKYO, Jan 8 (Reuters) – Japan’s household spending unexpectedly rose in November, as consumer sentiment showed cautious signs of recovery from the damage inflicted by the coronavirus pandemic.

A one-month state of emergency for the Tokyo area approved by the government on Thursday is likely to hurt the recovery in domestic demand, with some analysts expecting the economy to fall into contraction in the first quarter of this year.

Household spending rose 1.1% in November compared to the same month a year earlier, underpinned by strong expenditure on utilities as well as meat and vegetables, official data showed on Friday. The data, which beat a median forecast for a 1.5% decline, marked the second month of expansion following a 1.9% gain in October.

However, household spending slipped 1.8% in November from the previous month, the first such decline in four months, with demand for services such as travel tours hurt by a resurgence in COVID-19 infections.

Household spending was already under pressure throughout most of last year, due to the heavy hit of the COVID-19 crisis and after the government in October 2019 raised the country’s nationwide sales tax.

Takeshi Minami, chief economist at Norinchukin Research Institute, said the surprise on-year rise in spending had to be seen in the context of households tightening their purse strings due to a nationwide tax hike in October 2019.

“December saw a resurgence in infections and there were not many parties to celebrate the year-end, even on an individual basis,” Minami said, while the halting last month of a domestic tourism campaign was also expected to weigh.

The latest data is likely to provide some relief to policymakers struggling to manage the health crisis and achieving the government’s growth targets.

The government last month raised its real economic growth forecast for the next fiscal year starting April to 4.0% thanks to its latest stimulus package aimed at boosting an economic recovery, up from its previous forecast of 3.4% growth.

But the spending outlook is clouded by sluggishness in workers’ wages.

“Bonus payments will have decreased in December, which is likely to put restraints on consumption,” said Minami.

Data on Thursday showing inflation-adjusted real wages dropped for the ninth consecutive month in November, down 1.1% compared to the same month a year earlier.

That data also showed overtime pay, a barometer of strength in corporate activity, in November contracted for the 15th straight month, down 10.3%.

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