TOKYO (Reuters) - Japanese households' sentiment worsened in December to levels last seen before premier Shinzo Abe unleashed radical stimulus policies two years ago, a central bank survey showed, underscoring the challenges he faces reviving the economy.
The diffusion index measuring how households felt about the current state of the economy stood at minus 32.9 in December, down 12.5 points from September, the Bank of Japan's quarterly survey on people's livelihood showed on Thursday.
Abe's ruling party won a landslide victory in a snap poll in December last year, giving the premier a fresh mandate to proceed with his "Abenomics" mix of massive fiscal, monetary stimulus and structural reforms dubbed "Abenomics."
That is the lowest level since December 2012, when Abe won the previous election and launched his radical programme aimed at breaking the economy free of a long deflationary phase.
While the policies helped weaken the yen and boost stock prices, the effect on the economy has been disappointing as companies remain hesitant over boosting wages and capital spending.
Another index gauging households' livelihood fell 3.1 points to minus 47.2, the worst level since 2011, the survey showed.
A negative reading means respondents who feel they are worse off than three months ago exceed those who fell better off.
Many of those who replied that they are worse off complained of rising costs of living and stagnant wage growth, a sign households are feeling the pinch from a sales tax hike in April 2014 and rising import costs due to the weak yen.
The weak reading suggests Abe's decision last November to delay a second sales tax hike, initially planned for October 2015, did little to brighten sentiment.
It also highlights the dilemma of the BOJ, which is printing money aggressively to achieve its 2 percent inflation target sometime during the fiscal year beginning in April.
More than 80 percent of respondents expect prices to rise a year from now, roughly unchanged from September. But 83.8 percent of households consider rising prices as undesirable, up from 78.8 percent in September, the survey showed.