Japan Retail Sales Drop as Tokyo Prices Fall Most Since 2010

(Bloomberg) -- Japanese retail sales resumed falling and Tokyo consumer prices slid the most in a decade amid slumping energy costs and record virus cases that kept shoppers home and darken the recovery outlook.

Retail sales fell 2% in November from the prior month, as consumers continued to cut back on apparel purchases, the economy ministry reported Friday. Analysts had forecast an 0.8% decrease. The government kept its assessment that sales are basically flat.

A separate report showed Tokyo consumer prices excluding fresh food fell a more-than-expected 0.9%, the most since 2010, suggesting deeper declines in national price trends closely watched by the Bank of Japan. The BOJ last week called for a review of its policies so they’re more sustainable, given that the pandemic likely requires stimulus be kept in place for longer.

Other data Friday showed a relative bright spot for Japan’s economy, with the unemployment rate and a key metric of tightness in the labor market improving. The job numbers are positive for households, but sharp cuts to bonuses at the country’s biggest companies this winter are likely to trigger increased caution in spending.

Key Insights

• Friday’s data could be just the first indications of renewed weakness in consumer spending, a key driver of Japan’s rebound from its pandemic slump. The trend is likely to worsen because the virus has spread rapidly in Japan since the second half of November, with new confirmed cases rising above 3,000 on two recent days.
• “Given the spread of the virus to this level, the government has to set aside thoughts of recovery for now,” said economist Atsushi Takeda at Itochu Research Institute. “There’s no use until we can get back to a situation where people can consume without fear.”
• Record virus cases this month forced Prime Minister Yoshihide Suga to suspend a travel incentive program over the New Year holiday and local leaders are even calling on older people to wear masks at home. The moves, along with heightened anxiety, will hit restaurants, hotels and shops during a key spending season.
• Most analysts see growth slowing this quarter to a fraction of summer’s pace, and some are now flagging a risk the economy could shrink again in early 2021. A $709 billion stimulus package announced this month by Suga may help, but much of the new spending is for longer-term goals of making the economy more green and digital after the pandemic.

What Bloomberg Economics Says...

“Looking ahead, BE expects Tokyo’s CPI gauges to remain sluggish in January, as stagnating wages and winter bonuses undermine consumption. Beyond that, the price falls should narrow gradually next year as business activity recovers.”

--Yuki Masujima, economist

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• Retail sales rose 0.7% compared with the prior year, when consumers were in a funk following a hike to the sales tax. Economists projected a 1.8% increase.
• A separate report showed Japan’s unemployment rate improved, falling to 2.9% in November.
• The jobs-to-applicant ratio rose to 1.06, improving for a second month. The ratio means that job offers outnumbered applicants 106 to 100.

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