Japan May May retail sales rise faster than expected as COVID curbs easing

  • May retail sales up 3.6% y/y vs f’cast +3.3%
  • Retail sales up 0.6% m/m seasonally
  • Consumers optimistic about ‘Golden Week’ holiday season with no curbs
  • Consumption supports GDP recovery in Q2, inflation risks threaten
  • Consumer confidence in June at lowest point since January 2021

TOKYO, June 29 (Reuters) – Japanese retail sales rose for the third straight month in May, reinforcing views that strong consumption will lead to an economic recovery this quarter, although rising inflation poses a risk to household spending for the rest from 2022.

Retail sales rose 3.6% in May from a year earlier, government data showed on Wednesday, slightly ahead of the median market forecast for an increase of 3.3%.

It followed an upwardly revised 3.1% rise in April and marked the third month of progress since March, when the government lifted all coronavirus restrictions on personal services.

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On a seasonally adjusted month-on-month basis, retail sales grew 0.6% in May, after growing 1.0% in April.

Japanese consumers dined out and made domestic trips during the “Golden Week” holiday season towards the beginning of May, enjoying the respite from the COVID-19 curbs for the first time since 2019.

The recovery in service consumption and broader household spending has likely boosted the world’s third-largest economy, with analysts in the latest Reuters poll forecasting 4.1% annualized growth in Japan’s gross domestic product this quarter, after a contraction of 0.5% in January-March. read more

However, the rising cost of living driven by higher commodity prices and the yen’s decline to its 24-year low have fueled fears that Japan’s consumption-led recovery could be undermined for the remainder of this year. read more

Japan’s consumer confidence index fell to 32.1 for the first time in three months in June from 34.1 in May, separate government data showed on Wednesday. It hit its lowest level since January 2021, when the rising number of coronavirus cases diminished consumer buying appetite.

“A continued rise in the cost of electricity, food and other everyday goods has likely dampened household sentiment,” a Cabinet Office official told a media briefing on the index, compiled from a survey of 4-20 June.

Consumer inflation has taken center stage ahead of next month’s national upper house elections, hitting Prime Minister Fumio Kishida’s approval ratings, although his ruling party is widely expected to claim victory. read more

Although Japan is gradually reopening its economy, “consumers are under pressure from weak wage growth on the one hand and rising energy and food prices on the other,” Stefan Angrick, senior economist at Moody’s Analytics, wrote in a note. .

“This makes the recovery vulnerable to setbacks.”

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Reporting by Kantaro Komiya; Additional reporting by Yoshifumi Takemoto; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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