By Leika Kihara

TOKYO (Reuters) – Japan’s household spending rebounded modestly in July as higher bonus payments pushed up real wages, offering policymakers some hope a sustained economic recovery and a tight job market are encouraging consumers to spend.

The data came as premier Shinzo Abe, who sought to reflate the economy with heavy monetary and fiscal stimulus measures, kicks off his campaign for another term as head of his ruling party in a leadership vote later this month.

A pick-up in consumption and wage growth could help the Bank of Japan make its case that inflation will gradually head toward its ambitious 2 percent target.

But escalating trade frictions cloud the outlook for the export-reliant economy, with reports U.S. President Donald Trump could be contemplating taking on Japan over trade.

“Consumption isn’t necessarily strong. Capital spending is underpinning growth but may cool if exports slump,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“Japan’s economy is doing fairly well but remains vulnerable to external shocks. Consumption won’t have the strength to offset any future slowdown in external demand.”

Household spending rose 0.1 percent in July from a year earlier, government data showed on Friday, confounding a median market forecast for a 0.9 percent drop and rebounding after five straight month of declines.

Separate data showed Japanese workers’ inflation-adjusted real wages rose 0.4 percent in July from a year earlier, marking a third consecutive month of gains.

The gain followed a revised 2.5 percent annual increase in June, the biggest gain in more than 21 years, as companies boosted summer bonus payments, the data showed.

The government revised up its assessment on household spending for the first time in more than a year, saying it was on a solid footing. That compared with the previous month’s view that spending was weak.

While bad weather kept some consumers at home, higher summer bonuses prompted households to buy…

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