By Leika Kihara and Kaori Kaneko
TOKYO (Reuters) - Japan's household spending unexpectedly fell in October and real wages slipped for a third straight month, adding to concerns about the strength of the economy as global trade frictions cloud export prospects.
The data follow a Reuters survey that showed Japanese firms are becoming more pessimistic about the country's economic prospects due to the Sino-U.S. trade war and next year's scheduled sales tax hike at home.
Household spending decreased 0.3 percent in October from a year earlier, government data showed on Friday, confounding a median market forecast of a 1.4 percent rise and marking the second straight month of falls.
Separate data showed real wages slipped for a third straight month in October, adding to concerns a full-fledged recovery in consumer spending is still some way off.
"Conditions aren't falling in place for consumption to strengthen. Recent rises in fuel and food prices may have hurt non-essential spending," said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities.
"Wages are gradually increasing but not enough to make up for the higher cost of living, so spending isn't rising much."
A pickup in consumption is crucial for the Bank of Japan to achieve its elusive 2 percent inflation target, as weak spending has so far discouraged firms from raising prices for fear of turning away cost-sensitive households.
BOJ Governor Haruhiko Kuroda repeated his resolve to maintain the central bank's massive stimulus program, warning of heightened global economic risks.
"The economy is sustaining its momentum for achieving our 2 percent target. But that momentum lacks strength, so we will carefully watch developments," he told parliament on Friday.
Japan's economy shrank in the third quarter and some analysts warn any rebound in the current quarter could miss consensus expectations as trade protectionism and slowing global demand hurt business sentiment.
"Looking at October's household spending data, we're not seeing a strong rebound in services prices," said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.
"Consumption in October-December will probably rise more than the previous quarter. But the gain will be fairly small."