Japanese consumers simply refuse to be stimulated

Nope. Picture: Getty Images

No matter what stimulus policymakers throw at Japanese consumers, it’s just not having an impact – at least not yet.

According to data released by the Japan’s Ministry of Economic, Trade and Industry (METI) released on Thursday, retail sales slipped by 1.1% in August, leaving the year-on-year decline at 2.1% after seasonal adjustments.

Underscoring the weakness in spending, sales have now contracted on an annualised basis for six consecutive months. Not only that, the 2.1% drop was the steepest since March last year.

According to METI, the weakness in August was driven by declines in clothing and home appliances sales.


Although weak, some analysts believe the run of consecutive annualised declines may be coming to an end.

“I don’t expect consumer spending to continue falling but future gains are likely to be very modest,” Hiroaki Muto, an economist at Tokai Tokyo Research Centre, told Reuters.

“The government has already got the stimulus package it wanted. We need to see more incoming data to determine if the situation is bad enough to force the Bank of Japan to lower its assessment of consumption.”

The stimulus package announced by the Japanese government in early August includes 7.5 trillion yen in spending on infrastructure projects, something it hopes will flow through to the household sector, helping to boost consumption levels.

According to Reuters, economists say the package, which is sure to be passed in parliament, could support growth but still worry whether wages will rise fast enough to spur consumer spending.

Following the release of today’s retail sales report, all attention will now turn to a swathe of Japanese data releases on Friday, including consumer price inflation and household spending figures for August.

In July, core consumer price inflation (CPI) — that which excludes fresh food prices — fell by 0.5% compared to the levels of a year earlier.

The figure missed expectations for a decline of 0.4%, the same rate seen in June.

It was the largest year-on-year decline since March 2013.

The Bank of Japan, faced with intensifying deflationary pressures within the economy, announced a “inflation-overshooting commitment” at its September monetary policy meeting, pledging to expand the nation’s monetary base until the annual increase in consumer price inflation (CPI) exceeded its price stability target of 2% “and stays above the target in a stable manner”.

Deflationary pressures are detrimental to household consumption growth, including retail sales, seeing some consumers put off spending in the belief prices will be lower in the future.