TOKYO (REUTERS) - Japanese Prime Minister Fumio Kishida instructed his Cabinet on Friday (Oct 8) to compile an economic package after the general elections to ease the pain from the coronavirus pandemic, Finance Minister Shunichi Suzuki said.

Mr Suzuki told reporters after a Cabinet meeting that he hoped to compile a "high-quality" extra budget immediately after the Oct 31 general elections and have it approved by Parliament by the end of the year.

Japan's household spending fell more sharply than expected in August, as state of emergency curbs to combat the Covid-19 pandemic weighed on consumption during the summer holiday season and risked undercutting the economy's recovery.

Friday's government data bodes ill for Mr Kishida's efforts to revitalise the pandemic-hit economy and distribute more wealth to households through higher wages.

The 3 per cent year-on-year decrease in spending was worse than a median market forecast for a 1.5 per cent drop and followed a 0.7 per cent increase in July.

The month-on-month figures showed a 3.9 per cent contraction in August, the fourth straight month of decline, and compared with expectations for a 2 per cent drop.

Mr Kishida also vowed to devote himself to ending the Covid-induced economic crisis in his first policy speech to parliament.

"I'm determined to devote body-and-soul to overcome this national crisis with the people, carve out a new era and pass on to the next generation a country whose citizens are rich at heart," he said.

The spread of the Covid-19 infections and subsequent restrictions nationwide hindered consumption in restaurant dine-ins and a wide variety of goods from fashion items to furniture, a government official said, adding that rainy weather also discouraged customers' visit to stores.

"What's more, supply chain issues have started to affect private consumption, as car sales have been declining since August; it was worse in September," said Mr Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute, referring to statistics by the automobile industry.

"Service spending will bounce back in September as infections waned and more people are active outside, but the large dip in car sales may strip the momentum for recovery," Mr Tsunoda said, adding that sales of consumer electronics such as smartphones may also be affected by the supply chain disruptions.

Consumption has been a weak spot for the world's third-largest economy as a spike in Delta variant cases and state of emergency curbs kept households from shopping or eating out.

Japan's services sector activity shrank for a 20th straight month last month, according to a recent private survey.

But analysts expect consumption to rebound in coming months as the lifting of curbs from this month and steady progress in vaccinations heighten hopes of pent-up demand.

The economy, however, faces fresh headwinds from supply constraints, as a shortage of semiconductor chips and parts disrupts automobile production enough to hurt exports.

Following annualised growth of 1.9 per cent in the second quarter, analysts predict a slowdown in July-September largely due to weaker private consumption.

Separate data on Friday showed inflation-adjusted real wages in August rose 0.2 per cent from the same month a year earlier, largely due to a statistical base effect.

Wages "should rise higher over the coming months as the labour market tightens and vaccines allow a full recovery in overtime and bonus payments", said Mr Tom Learmouth, Japan economist at Capital Economics.