September 9, 2015, 18:30 JST

Low income growth weighing down on consumer sentiments

The consumer confidence index in Japan picked up in August to 41.7, up from 40.3 in July. The pickup is still within a margin of error though. The index has been fluctuating in a tight range between 40 and 42 points since early this year. The index has a reasonable correlation with retail sales in Japan and the modest recovery in August gives some hope that Japanese consumers had an "OK" summer after a lukewarm spring.

Sub-components of the index show that the low wage growth in Japan is holding the consumer sentiment down. In the past few years, consumers became happier on their employment condition and on the value of their assets, but they remain depressed on their income growth. 

Together with the consumer confidence index and its components, the Cabinet Office publishes a survey result for the inflation expectation among Japanese households. In August 2015, we see that the expectation for future inflation may be waning at the margin. According to the survey, the percentage of consumers who expect the price would rise was 85.5%, hitting the lowest point since July 2014. The decline is still marginal, but this indicator deserves some attention in the next few months as further declines would send alarm to the BoJ who likes to insist that they have managed to create an inflationary expectation.