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

Repeats Story Initially Transmitted at 05:34 GMT Mar 29/01:34 EST Mar 29
--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

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