MNI ANALYSIS: Japan Consumer Confidence Flat, Spending Soft

By Max Sato

     TOKYO (MNI) - Japan's consumer sentiment is resilient but not showing a

clear pickup in light of a drop in summer bonuses, lingering geopolitical risks

and markups in some service prices, data released Tuesday suggests.

     Household spending is also sluggish, slowing in the July-September quarter

after boosting the economic growth in April-June, with some economists pointing

to the risk of a slight drop in private consumption in Q3 GDP.

     Japan's consumer confidence index rebounded 0.6 point to 43.9 in September

on a seasonally adjusted basis, backed by moderate weather and a lull in sabre

rattling between North Korea and the U.S. over Pyongyang's nuclear arms threat.

     It was the first month-on-month rise in two months after falling 0.5 point

to 43.3 in August.

     Whether confidence is being affected by the news that Prime Minister Shinzo

Abe dissolved the Lower House and called a snap election will be known in the

October survey.

     The latest monthly Consumer Confidence Survey of households with two or

more people was conducted on Sept. 15, before media reported Abe's election

plans.

     The public approval rating of the Abe cabinet fell 7 points from last month

to 37% according to the latest opinion poll conducted by public broadcaster NHK

from Sept. 29 to Oct. 1. The disapproval rating rose 8 points to 44%.

     Two thirds of those polled said they were unhappy about Abe dissolving the

lower chamber at the start of a Diet session, avoiding further investigation

into political scandals over the process of government approval of new schools.

     The consumer confidence index recovered to 43.9 seen in March but it has

shown ups and downs since then.

     "When you even out the bumps, it is still flat," Toshimi Nishizaki,

director of the Department of Business Statistics at the Cabinet Office.

     "In September, we had calm weather after the long stretch of rainy days and

the lack of sunshine dampened the confidence in the Tohoku and Hokuriku regions

(in northern and central Japan) in August," she said. "Confidence rebounded in

those regions, pushing up the overall confidence.

     Geopolitical tensions over the North Korean missile crisis also eased

slightly when the survey was conducted last month but they could have a negative

impact on confidence again as there is no quick fix to the problem, she said.

     The government maintained its assessment after downgrading it for the first

time in nine months in the August report, saying confidence was "largely flat."

Previously, it said confidence was "picking up."

     "Consumer confidence is dragging its feet, partly because summer bonuses

declined from last year's levels," said Akiyoshi Takumori, chief economist at

Sumitomo Mitsui Asset Management.

     "Department store sales have been strong but household spending has been

sluggish so far in the July-September quarter. Private consumption in the Q3 GDP

may show a slight drop, by 0.1% on quarter, or it will be flat at best."

     But Takumori and other economists expect Q3 GDP, due on Nov. 15, to post

solid growth above 1% on an annualized basis, backed by business investment and

exports.

     Private consumption rose 0.8% on quarter in April-June, pushing up Q2 GDP

growth by 0.5 percentage point to 0.6% on quarter, or 2.5% at an annualized

pace, which is far above the economy's growth potential estimated just under 1%.

     Government data released Friday pointed to weaker-than-expected household

spending in August amid a drop in summer bonuses compared to last year and

higher medical costs.

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

months, up 0.6% in August, half the MNI survey median forecast for a 1.1% gain,

after falling 0.2% in July.

     The core spending index, which excludes housing, motor vehicles and other

volatile items (close to private consumption patterns in GDP data), fell 0.1% on

month in August on a seasonally adjusted basis, the second straight

month-on-month drop following -0.3% in July.

     Wages data have been also weak. The latest data showed total monthly

average cash earning per regular employee fell 0.6% on year in July for the

first drop in 14 months after rising 0.4% in June, due to a slump in summer

bonuses.

     Base wages, the key to a recovery in cash earnings, rose 0.5% on year,

showing the gradual uptrend, but bonuses and other special pay fell 3.1%.

     The Consumer Confidence Survey also showed that consumer inflation

expectations for 12 months ahead were mixed in September.

     The share of those projecting price rises edged up to 76.2 from 76.1% in

August while the share of respondents forecasting lower prices rose to 4.9% from

3.5% in the previous month in the wake of recent falls in vegetable prices.

     "People reacted to the pullback in vegetable prices after the recent surge

caused by bad weather," Nishizaki said.

     "But they also continued to see higher prices due to price hikes for home

delivery and medical services, which could have a negative effect on confidence

as many households will try to defend themselves from higher costs."

--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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