REPEAT: MNI ANALYSIS: Japan Retail Sales Trend Down on Prices

--Official: METI View May Be Downgraded in March Data

By Max Sato

     TOKYO (MNI) - The modest uptrend in Japanese retail sales is drifting

downward toward being flat, hit by the severe winter weather and volatile

financial markets, according to the latest data and official analysis.

     The sales trend can weaken further as fuel prices, although showing

year-on-year gains, are easing and high fresh food prices are likely to come

down after surging late last year.

     Retail sales rose 1.6% in February, posting the fourth straight

year-on-year rise, but it was largely supported by high prices of fuels and

vegetables, government data released Thursday showed. Excluding gasoline and

heating oil, retail sales gained only 0.4% on year last month.

     The February increase was also led by continued solid demand for heaters

and high-end electric appliances as well as smart phones, including low-priced

models.

     --MARCH DOWNGRADE POSSIBLE

     The Ministry of Economy, Trade and Industry maintained its view that retail

sales were "picking up moderately" but the three-month moving average of retail

sales slipped 0.1% in December-February from the previous three-month period,

marking the first drop in seven months.

     "If you smooth out the monthly fluctuations, the trend in retail sales is

getting closer to being flat," Kazuhiko Manaka, director of METI's Office of the

Current Survey for the Service Industry, told MNI. "We will decide next month

whether to downgrade our assessment to say retail sales are flat."

     If the conditions are worse than that, the assessment would be "weakening,"

he said.

     Looking ahead, higher temperatures since mid-March may have supported

demand for spring clothing at department stores and supermarkets.

     --PRICE EFFECTS WANING

     On the downside, the largest factor behind the recent year-on-year gains in

retail sales -- high fuel prices -- is expected to wane, judging from the sixth

consecutive weekly drop in the national average regular gasoline price in Japan

on March 26.

     "Going forward, retail sales excluding fuels can decline, compared to

year-earlier levels," Manaka predicted.

     Among other soft spots, the effect of new car models introduced earlier has

also lost its shine, leading to a second year-on-year drop in automobile sales

in February retail sales.

     "For March, we heard from the car industry that sales were down from a year

earlier," Manaka said.

     Industry data released last week showed department store sales fell 0.9% in

February for the third straight year-on-year drop as freezing temperatures and

heavy snowfalls across Japan discouraged people from going shopping and dampened

demand for spring clothing. Volatile stock prices also made consumers more

cautious about spending.

     --YEN, STOCKS UNCERTAINTY

     On the upside, the Japan Department Stores Association noted that spending

by tourists from overseas continued to post double-digit percentage gains from a

year before and that sales to wealthy consumers remained solid.

     "However, the appreciation of the yen and stock price decline can hurt

spending by affluent consumers," Manaka warned.

     The dollar rebounded to Y106.60 in Asia Thursday after slumping below Y105

last week, but it is still much lower than Y113 seen at the start of the year.

The yen's rise trims exporter profits, weighing on domestic stock prices.

     After a global market sell-off earlier this year, the Tokyo stock market

remains volatile. The Nikkei 225 index was above 21,000 Thursday, but still down

from around 24,000 seen in early January.

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