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Japan’s Retail Sales Down 0.4% in June

July 27, 2007
By Ken Worsley


Given the rollback in income tax cuts, the massive increase in local taxes for fiscal 2007, lack of wage growth, worries over pensions and the recent decline in consumer confidence, I assumed that June retail sales would take a pounding. With May’s pay packets being the first to show the huge rise in local taxes, and nearly all employees at Japanese companies being paid once a month, usually late in the month, it seemed logical that in June, consumers would hold on to their purse strings, choosing to put off purchases until the Fall sales season hits.

Thus, I was a bit surprised to find that Bloomberg’s survey of 25 economists showed a median average prediction of a 0.6% gain in June’s retail sales figures. I hadn’t even considered the possibility of a gain in June; I was wondering more along the lines of just how bad it would get in June.

The report did have a bit of good news: Sales at large retailers were up 0.9%, for the first time in four months. Wholesale sales were up 5.3%. In a related item, US computer giant Dell has decided to start selling its PCs at electronics giant Bic Camera.

Except that I’ve seen Dell PC at Bic Camera for at least the past two years, so I’m not sure why that’s news now.

Earlier today, the Ministry of Economy, Trade and Industry published its report on retail sales for June, and the results were indeed negative: retail sales fell 0.4% in June against June 2006 (English report not yet published). Could we start to see declines in household spending over the coming months?

That would be bad for the economy indeed. With all the talk about capital spending and Japan’s increased exports, consumer spending still makes up about 55% of Japan’s GDP. Could a rise in the consumption tax lead to strong falloffs in household spending? If history is any guide, yes.

At the same time, we saw how Japan’s recent export data was boosted by the weak yen. The yen surged to 118 against the dollar today. I don’t think anyone is yet calling this a trend reversal, but again: history is there for a reason.

I still think an August raise in interest rates would be a mistake, but I still have the chances of it happening set at 65%.

Filed Under Economic Reports, Retail 

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Comments

3 Responses to “Japan’s Retail Sales Down 0.4% in June”

  1. John S on July 29th, 2007 12:48 pm

    I read that the Dells will go on sale at ‘all’ Bic Camera outlets in August. Maybe before they were only at a few.

  2. Live Blogging The Japan Elections | afoe | A Fistful of Euros | European Opinion on July 29th, 2007 6:07 pm

    […] A second issue which is looming on the horizon in tandem with these elections is the forthcoming August decision from the Bank of Japan on whether or not to raise interest rates another quarter percentage point. Personally I had been growing rather skeptical about whether the BoJ would be able to live up to market expectations here (Ken Worsley on the excellent Japan Economy News blog has also been worrying about all of this), but if this election turns into the rout for Abe that many people are expecting it is hard to see the poor old BoJ soldiering on regardless, and keeping a clear head whilst all those around it are busy losing theirs. […]

  3. Ivan Kitov on August 1st, 2007 6:10 pm

    In my previous posts,
    http://inflationusa.blogspot.com/2007/07/will-us-repeat-japanese-history-of.html
    http://inflationusa.blogspot.com/2007/07/evolution-of-unemployment-in-japan.html
    inflation and unemployment in Japan were presented as a linear function of the change rate of labor force level. Therefore, the labor force surveys conducted by the Japan’s Statistics Bureau (http://www.stat.go.jp/english/data/roudou/index.htm ) provide useful estimates for a good description of inflation and unemployment. These are contemporary estimates, however. For inflation prediction, one needs labor force projections. (The same approach is applicable to the prediction of unemployment.) National Institute of Population and Social Security Research provides quantitative projections of total population http://www.ipss.go.jp/p-info/e/S_D_I/Indip.html#t_2 which can be used for labor force projection. We consider two cases: constant participation rate fixed to 0.521 as measured in 2000, and participation rate increasing by 0.5% per year.

    Figure 1 http://inflationusa.blogspot.com/2007/08/prediction-of-cpi-inflation-in-japan.html
    displays the prediction of inflation for the period through 2050 in the case of constant participation rate. In this case, 2007 is the last year of positive inflation (CPI) and Japan steps into a very long period of
    deflation.

    Figure 2 presents the case of increasing participation rate. The increasing rate compensates negative effects of decreasing population till 2015, but the rate of total population decrease accelerates and a new deflationary period starts in 2015.
    In reality, inflation in Japan will evolve somewhere between or close outside of these curves depending on
    the developments in social and migration policies. Economic means is hardly possible.

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