REPEAT:MNI ANALYSIS:Japan Consumption Faces Structural Factors

Repeats Story Initially Transmitted at 11:16 GMT Jul 6/07:16 EST Jul 6

By Max Sato

     TOKYO (MNI) - Weak consumption data for May released Friday indicates

challenges posed by structural factors are overwhelming the recent improvement

in employment and income conditions.

     Real average household spending slumped 3.9% on year in May after

adjustment for the gap caused by using two different survey methods, the fourth

straight drop after a 1.3% fall in April. It came in much weaker than the MNI

median economist forecast for a 1.8% drop.

     The decrease was caused by lower spending on ceremonies and gift money. It

was also due to lower expenditures on eating out as May 5 fell on a Saturday,

making the Golden Week holidays slightly shorter than a year earlier. Purchases

of fish also declined in light of supply shortages.

     --MODEST Q2 REBOUND

     Spending was also down on month amid a continued drop in real income,

indicating that sluggish private consumption will lead to only a modest rebound

in the April-June GDP after the economy posted the first contraction in about

two years in the January-March quarter.

     The Bank of Japan's supply-side Consumption Activity Index also posted the

first month-on-month drop in two months in May, down a real 1.4% on a seasonally

adjusted basis following a 2.1% gain in April, although the April-May index

average was still 0.7% above the January-March level, when it fell 0.4% on

quarter.

     --RISING COST RISK

     "The rising costs of gasoline and other daily necessities are making

households cautious about spending while real wages are slow to recover," said

Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management.

"Supermarkets are cutting prices for survival while durable goods prices are

picking up."

     Mitsubishi UFJ Research and Consulting economist Shinichiro Kobayashi

points out that bad weather is becoming a permanent, rather than temporary

factor to dampen consumption.

     In August 2016, a series of typhoons hit Japan, not only having an

immediate impact of pushing down air conditioner sales but also causing poor

crops and a resulting surge in fresh vegetable prices that had a lasting effect

on households.

     Again in the summer of 2017, cooler-than-expected weather dampened sales of

seasonal goods and triggered a spike in fresh food prices that hit many

households months later, dampening consumption in the first quarter of 2018.

     --WEATHER AND AGES

     "Until last week, I thought the hot summer weather would boost spending

this year because the rainy season ended exceptionally early in Tokyo and some

other cities," Mitsubishi UFJ's Kobayashi said. "But rain storms are wreaking

havoc this week and the rainy season still continues in other regions, giving me

a sense of deja vu."

     The government blames the recent rise in the share of senior households for

the sluggish consumption levels, but Shunsuke Kobayashi, economist at the Daiwa

Institute of Research, disagrees, saying retirees, armed with savings and

pension incomes, have a high propensity to spend.

     "I personally think it's because companies are trying to raise the salaries

for young employees in the their 20s as well as students working part-time amid

labor shortages," he said.

     "In order to do this, they are trimming the wages and benefits for those

aged 35 to 55 who need money for raising children. If the prices for eating out

and cars rise, they will have to cut back on spending."

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