October 28, 2014, 15:30 JST

Japanese consumers more resilient than we thought

Retail sales results in September provided another hint that Japanese consumers are recovering from the shock caused by the sales tax hike in April. In September, retail sales rose by 2.3% year on year (YoY), the third consecutive month with positive YoY growth. After a seasonal adjustment, retail sales grew as much as 2.7% from August. 

 Source: METI, JMA.

Compared with its average in 2013, the retail sales level in September was 3.8% higher. In our view, the Japanese consumers seem to be breaking free from the negative shock caused by the consumption tax rate hike in April.

To our readers, our assessment may seem markedly positive compared with other commentators. As we listen to them on the Japanese media, many commentators seem to be becoming increasingly concerned over the consumption trend. We (JMA), on the other hand, have become less and less concerned over the past few months. 

The difference probably comes from the difference in the initial expectations. We were initially so concerned over the negative effects of the sales tax hike that a replay of 1997 may be possible. However, we realize now that we were too pessimistic. The drop in private consumption seems to be temporary, and despite the steep decline in real wages due to inflation, consumers seem to be resuming to consume. While it means that Japanese households must be dis-saving, it is helping Japan to avoid a replay of 1997 when an economic stagnation after a sales tax hike led to a financial crisis and one of the worse recession in post WWII Japan.

 Source: METI, JMA.

So long as there is no dramatic turbulence in the financial markets in the near future, the chances are that the Japanese economy could enjoy a modest growth until we need to see how Japan copes with the effect of the second round of sales tax hike to 10% in October 2015. 

By sub-sectors, supermarkets seem to have done poorly in September, with their existing store sales declining slightly (-0.1% YoY). However, their sales are still up year on year when we include their newly opened stores (1.7% YoY).

 Source: METI, JMA.

Department stores recorded their second consecutive month with positive YoY sales (1.7% YoY). Convenience store sales accelerated somewhat to 5.6% YoY.

 Source: METI, JMA.