MNI ANALYSIS: Cold Weather Continues To Chill Japan Economy

--Slowdown in January Appears To Linger On Into February

By Max Sato

     TOKYO (MNI) - The cold winter and lingering high food and fuel prices are

having a chilling effect on Japan's economy into the second month of the year,

undermining a quick pickup in sentiment and spending.

     The Economy Watchers Survey sentiment index for the current economic

climate may remain weak in February (data due on March 8) after slumping 4.0

points on month to a six-month low of 49.9 in January on a seasonally adjusted

basis.

     --SNOW BELT HIT

     In the Hokuriku region along the Japan Sea Coast snow belt, severe snow

storms in February disrupted the distribution of food and fuels and forced

Panasonic and several other firms in Fukui Prefecture to suspend production of

various products ranging from electronic parts and machine tools to construction

materials and plastics.

     The Watchers current sentiment index for Hokuriku fell 4.5 points on month

in January. The outlook index for the northern central Japanese region dropped

2.7 points while the national outlook index dipped only 0.3 point.

     "In January, demand slumped but in February, supply is being disrupted,"

Hidenobu Tsujino, senior analyst at the Hokuriku Economic Research Institute,

told MNI. "Factory operations are being resumed but bad road conditions are

making it hard for employees to commute."

     --STORE SALES DOWN

     On the national level, industry data this week showed department store

sales fell 1.2% in January for the second straight year-on-year drop, as

freezing temperatures across Japan discouraged people from going shopping and

heavy snowfalls disrupted traffic and caused casualties in some regions.

     "It is too cold to promote sales of spring clothing and the slowdown is

continuing into this month," an official at the Japan Department Stores

Association told MNI. "The cold weather started early this season, so sales of

winter goods have been going strong, but at the same time, some stores are

missing out on opportunities because supply of winter coats is not catching up

with demand as the cold weather lingers."

     --LATE SPRING

     The supply of winter clothing is also becoming scarce at supermarket

chains.

     "Sales of women's winter clothing was not bad in January. In fact,

inventory clearance has gone too fast while we have to sell winter goods until

March," a sales manager at a major retail store chain in the Tokyo suburbs, told

MNI. "We are supposed to start promoting sales of spring clothing but we are not

sending out flyers, knowing nobody will come yet."

     Retail sales compiled by the Ministry of Economy, Trade and Industry are

expected to show a slower pace of increase in January due to the bad weather in

data to be released on Feb. 28.

     The median forecast by nine economists polled MNI showed retail sales rose

2.0% on year in January, slowing from the 3.6% gain in December.

     --RISING COSTS

     Data released Friday showed the core consumer price index, which excludes

volatile fresh food, remained subdued, up 0.9% on year in January, but the total

CPI rose 1.4% on year, showing high costs for daily necessities continued to

weigh on households.

     Real average household spending posted the first year-on-year drop in two

months in December, down 0.1%, after rising 1.7% in November. January data are

due out on March 9.

     The decrease in December was led by what officials see as temporary factors

-- heavy snow in northern regions hampered home maintenance and repairs while

purchases of automobiles dipped after recent increases. Consumers also trimmed

spending on fresh vegetables and fish as prices remained high.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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