Jan. 17 (Bloomberg) -- Japan's households became less pessimistic in the fourth quarter, lifting a confidence index to a 14 1/2 year high, as job prospects and wages in the world's second-biggest economy improve.

Confidence among households with two or more people rose to 48.2 in the three months ending in December, the highest since the second quarter of 1991, from 44.8 in the third quarter, the Cabinet Office said today in Tokyo. Readings below 50 means pessimists outnumber optimists.

Consumer spending, which accounts for more than half the economy, has been bolstering economic growth as households spend higher wages, aiding sales at companies such as Fast Retailing Co., operator of the Uniqlo casual clothing store chain. Better job prospects and higher bonuses suggest demand will keep rising.

``Japanese consumers' confidence showed pretty strong improvement in the fourth quarter, as winter bonuses rose and companies expanded hiring,'' said Takuji Aida, chief economist at Barclays Capital Japan Ltd. ``This increases the prospect of a consumer spending expansion.''

Barclays Capital yesterday raised its fourth-quarter gross domestic product growth estimate to an annualized 3.5 percent from 2.3 percent, saying that spending by consumers probably rose about 1 percent in the fourth quarter from 0.4 percent expansion in the third quarter.

The yen traded at 115.12 against the dollar at 2:10 p.m. in Tokyo, down from 114.99 before the report was published. The yield on the benchmark 10-year bond fell 2 basis points to 1.435 percent at 2:57 p.m. in Tokyo. A basis point is 0.01 percentage point.

An index measuring confidence about employment rose to 53.3, the first time Japanese households have been optimistic about job prospects since March 1991 and the highest since December 1989.

Employment Figures

The improvement tallies with the latest employment figures from the statistics bureau.

The number of people who have no intention of working and stayed out of the workforce shrank by 80,000 from a year earlier in November as more people entered the job market.

The November job-to-applicant ratio, which shows how many jobs are available to a job seeker, was at the highest since October 1992.

Rising wages and stock prices as well as increased sales winter clothing and other seasonal goods due to the colder-than- usual weather in Japan are boosting consumption, Barclays said.

Wages have risen for six of the past eight months and winter bonuses rose to an average 862,705 yen ($7,531) last year, 4.4 percent higher than in 2004, according to a survey compiled last month by the Keidanren, Japan's largest business lobby.

Cold Weather

First-quarter net profit at Fast Retailing rose 18 percent thanks to unusually cold weather, the Yamaguchi prefecture-based company said on Jan. 12.

Japan had its coldest December in 20 years with some areas recording the lowest average temperatures since 1946 and record levels of snow, the Japan Meteorological Agency said.

Unadjusted consumer confidence among households with two or more people fell to 46.5 in December from 48.2 in November, the Cabinet Office said. Overall confidence, which includes single households sank to 46.7 from 48.2.

The monthly consumer confidence indicator has fallen in the last month of every quarter for the seven quarters that the monthly data has been collected, according to Bloomberg data.

To contact the reporter on this story: John Brinsley in Tokyo at jbrinsley@bloomberg.net

Last Updated: January 17, 2006 01:03 EST