REPEAT: MNI ANALYSIS: Japan Spending Lackluster on Weak Wages

Repeats Story Initially Transmitted at 00:21 GMT Nov 15/19:21 EST Nov 14

By Max Sato

     TOKYO (MNI) - Japanese consumer spending fell in the July-September in what

seems to be a temporary slump due to bad weather but government officials also

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

     While the public approval ratings of the government of Prime Minister

Shinzo Abe have risen after Lower House elections last month, opinion polls and

surveys also show that many voters do not feel the benefit of the current

lukewarm economic recovery.

     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 and trimming the total domestic output by 0.3 percentage point,

preliminary GDP data released Wednesday show.

     The long stretch of rainy days and typhoon weather hurt tourism and

restaurants while replacement demand seen in April-June for automobiles

purchased with government fuel efficiency subsidies ago faded in July-September.

     In addition, orders for the latest smartphone models were slow, as some

customers waited for the November release of the iPhone X instead of rushing to

buy the iPhone 8, which went on the market in September.

     While some, especially exporters, are benefiting from stock market gains

and the generally weak yen promoted by the Abe government, others question

whether his reflation policy mix of large-scale monetary easing, increased

fiscal spending and planned structural reforms is actually improving the

livelihoods of average consumers and boosting firms that rely on domestic

demand.

     "Compared to rising corporate profits, wage growth has been weak. Private

consumption is lagging behind overall business conditions. It lacks strength," a

senior Cabinet Office official told reporters.

     Japan's economy grew a modest 0.3% on quarter in July-September, or an

annualized 1.4%, led by a rebound in exports, but domestic demand pushed down

GDP by 0.2 percentage point. The 1.4% annualized growth was the seventh

consecutive increase and just above the economy's growth potential estimated

below 1%.

     "In addition to bad weather, there is also an aspect of a slight drop in

domestic demand," the official acknowledged.

     Still, the official said he continues to believe domestic demand is a

driving force for the current modest but sustained economic recovery, if

indicators are smoothed out.

     The latest opinion poll by public broadcaster NHK conducted between Nov. 10

and Nov. 12 showed that the public approval rating of the Abe cabinet rose to

46% from 39% in the previous survey conducted a week before the Oct. 22 Lower

House election while the disapproval rating fell to 35% from 42%.

     Abe led the ruling coalition to a comfortable win in the snap election as

voters sought stability in government and opposition parties remained

fragmented. NHK analyzed that Abe's agreement with U.S. President Donald Trump

to continue pressing North Korea to give up nuclear arms development also helped

raise public support of Abe's nearly five-year-old government.

     However, the NHK poll also indicated that many voters were not so happy

with the current business conditions: 64% of those surveyed said they could not

feel the economic recovery while only 6% said they could. Even among the

supporters of the ruling parties, 53% replied they could not feel the benefit.

Among those who voted for the opposition parties, 75% said they could not sense

a pickup.

     The survey showed 28% of those polled said the Abe cabinet must work on

social security, 19% attached importance to economic stimulus measures and 16%

called for fiscal reforms. Only 6% regarded as a key issue the rewriting of the

post-war pacifist constitution, the nationalist politician's pet project.

     Government data released last week showed that total monthly average cash

earnings per regular employee in Japan rose 0.9% on year to Y267,427 in

September, posting the second straight year-on-year rise, but continued to mark

a slight drop from a year before after adjusted for inflation.

     Summer bonuses, which were paid between June and August, managed to post a

slight gain of 0.4% on year but the pace of increase was much slower than +2.3%

seen a year before, as expected.

     The core spending index for households with two or more people, which

excludes housing, motor vehicles and other volatile items, fell a real 0.1% on

quarter to 99.0 in July-September, the first drop in three quarters after rising

1.0% in April-June. It has stayed under 100 (the 2015 base year) for two years.

     The weak yen makes imports more costly, with mark-ups for basic materials

and processed food, while keeping energy prices high.

     But government officials said the current dollar/yen exchange rate around

Y113 is not having a serious negative impact on households.

     "The current level is not causing a huge problem yet," the Cabinet Office

director of regional economies Shigeru Hirota told MNI.

     Another government official also told MNI, "Unless the yen depreciates

sharply from here, it is unlikely to hurt household spending at this point."

     Japanese policymakers appear to be comfortable if the dollar/yen exchange

rate remains stable in a range from around Y105 to about Y115, or in a wider

Y100 to Y120 range.

     Ruling party politicians saw a dollar above Y105 as having corrected the

yen's steep rise in the past while they fear a level above Y120 hurts small

businesses and households with higher import costs.

     Consumption data for October are not yet available, but preliminary figures

from major department store chains showed a mixed picture: stormy weather put a

damper on some sales but lower temperatures boosted sales of winter clothing

while demand for cosmetics and high-end jewelry and watches remained strong.

     Typhoons hit many parts of the country for two weekends in a row last

month, hurting sales at retail stores and restaurants, but solid demand for

business investment and rising job offers pushed up the Economy Watchers' Survey

sentiment index for Japan's current economic climate rose to a more than

three-year high.

     The Consumer Confidence Survey, which was conducted on Oct. 15, before the

big typhoons hit Japan, also showed that the confidence index rose to a

four-year high, led by bullish stock markets.

     "It was all about the sharp rise in the stock markets and there was no

particularly negative news," said Toshimi Nishizaki, director of the Department

of Business Statistics at the Cabinet Office. "Fresh food prices were stable and

the increase in energy prices was also calm."

     "The worst combination for consumer sentiment would be the yen's rise and

stock market decline," she told MNI.

--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