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Jul 29, 2009
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Japan's retail sales fall more than expected

By
Reuters
Published
Jul 29, 2009

TOKYO, July 29 (Reuters) - Japanese retail sales fell more than expected in June from a year earlier, suggesting that worsening job and income conditions were offsetting the positive effects on spending of government stimulus measures.


A busy crosswalk in Tokyo's Shibuja neighbourhood

The outlook for consumption is weak with summer bonus payments likely to fall from last year's levels, which may add to downward pressure on prices as Japan struggles with its second spell of deflation in a decade.

"The government has taken various measures to stimulate demand but the effect isn't spreading broadly to the economy," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"With wages falling and summer bonuses on the decline, consumers are in no mood to spend. The effect of government payouts to households is already tapering off."

Retail sales fell 3.0 percent in June from the same month a year earlier, more than a median market forecast for a 2.5 percent decline, marking the 10th straight month of falls.

While government subsidies on energy efficient appliances have boosted sales of flat screen TVs and air conditioners, spending on other items remains subdued.

"The data showed consumers are becoming thrifty," said a senior official at the Ministry of Economy, Trade and Industry, which compiled the data.

Sales fell 0.3 percent in June from previous month, after having risen in April and May.

Consumer sentiment has been on the mend in recent months helped by a rebound in share prices and the government's stimulus spending, including one-time payouts to households.

Service sector workers' sentiment has hit a two-year high and the government has upgraded its assessment of consumption.

The economy is thought to be out of recession already, with modest growth of 0.4 percent expected in the April-June quarter after a record 3.8 percent decline in the previous quarter.

But analysts expect any recovery to be fragile as companies try to cut jobs and cut back on capital spending, weakening domestic demand.

The unemployment rate is approaching the record 5.5 percent hit earlier this decade, threatening to overwhelm government efforts to revive spending.

Some market players think weak domestic demand could deepen deflation.

Figures due on Friday 31 July are expected to show nationwide core consumer prices fell 1.7 percent in June from a year earlier, more than the 1.1 percent drop in May, though it mostly reflects falls in oil prices in the past year.

Many economists believe falls in prices will ease later in the year but deflation could continue for many years to come.

(By Hideyuki Sano. Editing by Michael Watson)

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