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REPEAT: ANALYSIS: Japan Spending To Back GDP Despite Wage Drop

By Max Sato
     TOKYO (MNI) - The latest data show continued weak wage growth but consumer
spending is still expected to continue to support Japan's modest economic
recovery, at least for now.
     Total monthly average cash earnings per regular employee in Japan fell 0.6%
on year in July, revised down from the 0.3% drop reported in preliminary data,
as the decline in summer bonuses was steeper than initially reported, data from
the Ministry of Health, Labour and Welfare released Friday show.
     It was the first year-on-year drop in 14 months after a 0.4% rise in June,
but government officials argued the gradual uptrend remains intact. Bonuses and
other special pay fell 3.1% in July from a year before, revised down from the
initial reading of a 2.2% drop. It was the first drop in six months after +0.4%
the previous month.
     But base wages, the key to a recovery in cash earnings, rose an unrevised
0.5% in July, the fourth consecutive year-on-year gain, although the pace of
increase slowed from the recent high of +0.7% in May. Hourly base wages of
regular employees working part time gained 2.5% on year, revised down from a
preliminary +2.9%.
     "I wouldn't be surprised if bonuses in August fell, given various surveys
pointing to year-on-year declines, but our assessment is unchanged that wages
are increasing gradually," a ministry official said.
     "When the share of special pay decreases after the summer, wages are
expected to show a modest rise, led by base wages."
     The government sees private consumption picking up moderately while the
Bank of Japan says consumption has increased its resilience.
     Economists expect GDP growth will slow down from an unusually high pace in
April-June but also forecast consumption will prop up the total domestic output
while exports face uncertainty over global growth.
     "The weak summer bonuses will affect sentiment and propensity to spend in
the longer term," warned Norinchukin Research Institute chief economist Takeshi
     "Private consumption doesn't seem to be as strong as the government says
but it is likely to support economic growth until the end of next year or early
in 2019."
     The MNI median economist forecast for August average household spending due
on Sept. 29 is a real 1.1% rise, following a decline of 0.2% in July and a surge
of 2.3% in June. The forecasts by 14 economists ranged from +2.3% to -0.6%, with
Minami's forecast at the top of the range.
     Mitsubishi UFJ Research and Consulting economist Shinichiro Kobayashi
expects household spending to have slipped 0.6% on year, adding that the recent
solid tone remains intact.
     "Long rainy days in eastern to northern Japan dampened demand for seasonal
goods but data from department stores and supermarkets showed sales were firm on
a national level. So we don't think household spending in August was so weak,"
he said.
     "Consumer sentiment is rising along with higher share prices and there is
less fear about losing jobs at this point. On the other hand, wage growth is
weak and so is unlikely to provide strong support to spending."
     Combined same-store department store sales rose 2.0% on year in August,
posting the first rise in two months after falling 1.4%, as lower temperatures
supported late summer to autumn clothing sales, the Japan Department Stores
Association said Thursday.
     But Kobayashi noted consumer spending still lacks strength as people are
concerned about the sustainability of the social security system.
     "The propensity to spend is falling while the savings ratio is rising.
Consumption has been rising only slowly, at an annual pace of under 1%, compared
to 2% when it was strong," he said.
     Data released earlier this month showed April-June GDP growth was revised
down sharply to +0.6% on quarter, or an annualized +2.5%, from the preliminary
estimate of +1.0% on quarter, or an annualized 4.0%. This was largely because
business investment turned out to be slower than previously reported, but
economists welcomed the revision as it means the economy was expanding at a more
sustainable pace.
     Private consumption was revised down slightly but it remained the key
driver, with its contribution to the Q2 GDP growth of 0.6% unrevised at +0.5
percentage point. The contribution of capex was revised down to +0.1 percentage
point from +0.4 percentage point.
     Drops in factory output and household spending in July indicated the
economy started the July-September quarter with a softer tone after growth far
above its potential in the previous quarter. Bad weather is expected to slow
strong consumption seen in Q2 but at the same time, external demand is likely to
rebound in Q3 after a temporary slip in exports to Asia in Q2.
--MNI BEIJING Bureau; +1 202-371-2121; email:
[TOPICS: MAJDS$,M$A$$$,M$J$$$,MT$$$$,MGJ$$$]

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