Japanese merchant sentiment fell to a six-year low in January as stagnant wages forced consumers to crimp spending, the government said Friday.

The Economy Watchers index, a survey of barbers, shopkeepers and others who deal with consumers, fell for a 10th month to 31.8 in January from 36.6 in December, the Cabinet Office said. A number below 50 means pessimists outnumber optimists.

Consumer confidence is at a four-year low as companies keep the lid on wages and pare hiring as demand slows. Wages had their biggest drop in three years in December, dimming the prospect that the consumer will step up to help the world's second-largest economy overcome slower export demand.

"A warning alarm is flashing for consumer spending," Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute in Tokyo, said before the report. "With the U.S. economy slowing, Japan can't enjoy sustainable growth if household spending collapses."

Bank of Japan Gov. Toshihiko Fukui said Friday the cycle of profits feeding into wages and consumption that has supported the nation's longest postwar expansion is "temporarily weakening." Consumers are being squeezed by falling wages, a tighter job market and a 14 percent plunge in the Nikkei 225 stock average.

"I don't believe that the economy is recovering," said Hiroshi Sugiyama, a Tokyo cabby. "Consumers are definitely in the mood to save."

Some economists say the waning confidence is exaggerated and doesn't indicate weak household spending in the coming months.