MNI DATA ANALYSIS: Mediocre Japan Spending Continues Into Q4

By Max Sato

     TOKYO (MNI) - The stock market rise has continued to fuel spending on

luxury goods by wealthy Japanese consumers but subdued spending by lower income

families led to overall lackluster consumption at the beginning of the final

quarter of the year.

     Department store sales fell 1.8% on year to Y469.3 billion in October, the

first drop in three months, as typhoons hit many parts of the country for two

weekends in a row and there was one fewer Saturday compared to the year before,

industry data released Tuesday show.

     But department store sales to visitors from overseas hit a record Y28

billion in October, up 87.3% on year. Both domestic and overseas demand for

cosmetics and high-end jewelry and watches also remained strong.

     "Major store chains are reporting that spending by wealthy customers has

become even more robust since the Nikkei stock index passed the 21,000 mark last

month," an official at the Japan Department Stores Association told MNI. "Demand

for expensive brand-name watches and bags is very strong. I heard a Y100 million

watch was sold recently."

     Despite the overall sales drop in October, the official said the underlying

trend remains firm, with lower temperatures supporting demand for winter

clothing.

     However, a senior government official told MNI that consumer spending has

lacked strength during Japan's modest economic recovery that has lasted for

nearly five years.

     Japanese retail sales rose 2.3% on year in September, the 11th straight

year-on-year rise, the longest stretch of increase in seven years.

     The rate of increase is expected to have slowed in October but a 12th

straight rise would be the longest since the 62-month-long period from January

1987, at the height of the asset bubble, to February 1992, after the burst of

the bubble.

     "The weak yen and higher stock prices are fueling spending on luxury goods

by wealthy customers, but overall, middle- to lower-income consumers are being

frugal and not spending on unnecessary items," the government official said.

     "Retail sales have been up for 11 months in a row but our informal surveys

show that sales lack strength. We don't see any strong leaders among sales

items."

     New vehicle sales dropped in October, partly due to the suspension of

production and shipments by Nissan in the wake of its below-standard vehicle

inspection scandal. The lingering effects of the introduction of new models has

now faded, the official said.

     The Ministry of Economy, Trade and Industry will release preliminary

October retail sales data on Nov. 29.

     Japanese consumer spending fell in the July-September in what may be a

temporary slump due to bad weather during the period, though government

officials also point to a slight dip in domestic demand amid slow wage hikes.

     Private consumption, which accounts for about 60% of GDP, fell 0.5% on

quarter in the third quarter, the first drop in seven quarters after +0.7% in

April-June. The consumption drop trimmed total domestic output by 0.3 percentage

point, preliminary GDP data released last week show.

     Total monthly average cash earnings per regular employee in Japan rose 0.9%

on year to Y267,427 in September, the second straight year-on-year rise after

+0.7% in August, but continued to mark a slight drop from a year before after

adjustment for inflation.

     Data from the Ministry of Health, Labour and Welfare's 2017 annual report

show 16.6% of the households whose heads are in their 40s had an annual income

of under Y3 million in 2014 (the latest survey year), an improvement from 18.5%

in 2012 but still larger than the 11.2% seen in 1994.

     In another indicator of income constraints, the ministry said the share of

surveyed households that had an annual income of under Y4 million rose to 47%

this year from 34% in 1994. A widening income gap and the growing number of

single households suggest more people will find themselves in a low-income

group.

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

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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