The mixed readings are unlikely to shift Bank of Japan rate expectations decisively in either direction, limiting the immediate impact on the yen and Japanese government bonds. A smaller annual decline offers modest support to the case for tightening, but the weak monthly gain and nine straight contractions undercut the argument that consumption is recovering alongside wages. That gap between rising real wages and falling spending is the key tension for policymakers, and further evidence that households are saving rather than spending would argue for patience. For Japanese retailers and consumer stocks, the data point to a slow and uneven recovery in domestic demand.---Japanese workers have had eight straight months of real pay rises, but their wallets have stayed shut for nine, and that is the puzzle the Bank of Japan has to solve.Summary:Japanese household spending fell 3.1% year-on-year in August, smaller than the 3.6% drop forecast and the 3.6% fall in JulyIt was the ninth consecutive month of annual declineOn a seasonally adjusted monthly basis, spending rose 0.1%, short of the 0.5% expected and July’s 0.5% gainReal wages rose for an eighth straight month in August, data showed on WednesdayThe Bank of Japan will weigh the spending data as it considers whether to raise rates in coming monthsJapanese household spending fell for a ninth consecutive month in August, government data showed on Friday, although the year-on-year decline was smaller than markets had expected, offering a mixed picture of consumer demand as the Bank of Japan weighs whether to raise interest rates.Spending dropped 3.1% from a year earlier, according to the internal affairs ministry, compared with the median market forecast for a 3.6% fall, which was also the size of July’s decline. On a seasonally adjusted month-on-month basis, however, spending rose only 0.1%, well short of the 0.5% increase expected and slower than July’s 0.5% gain.The two readings point in different directions. The smaller annual decline suggests the downturn in household consumption may be easing, while the weak monthly figure indicates that momentum remains soft heading into the autumn.The data sit awkwardly alongside recent wage figures. Figures released on Wednesday showed Japanese real wages, which adjust pay for inflation, rose for an eighth consecutive month in August, pointing to a sustained recovery in household purchasing power. That improvement has yet to translate into a recovery in spending, which has now contracted on an annual basis for nine months running. One possibility is that households are choosing to save rather than spend their gains, or that the cost of essentials continues to crowd out discretionary purchases.The household spending survey is among the indicators the Bank of Japan will examine as it decides whether to raise rates in the coming months. Policymakers have looked for evidence that wage gains are feeding through into stronger consumption, a key condition for a sustained cycle of price and wage growth. A smaller-than-expected annual decline may offer some reassurance, but a ninth straight contraction alongside a sluggish monthly reading is unlikely to settle the debate on its own.Markets will watch upcoming consumption and inflation data, along with commentary from Bank of Japan officials, for clearer signals on the timing of the next policy move. This article was written by Eamonn Sheridan at investinglive.com.