Japan's service-sector sentiment weakens on post-Brexit yen gain

In spite of tempting posters and glitzy advertisements, sentiment in Japan's service sector and the retail industry is especially weak, on fears that a stronger yen and lower stock prices triggered by the Brexit would dampen already weak consumer spe
In spite of tempting posters and glitzy advertisements, sentiment in Japan's service sector and the retail industry is especially weak, on fears that a stronger yen and lower stock prices triggered by the Brexit would dampen already weak consumer spending. PHOTO: REUTERS,

TOKYO • Sentiment in Japan's service sector hit a new low last month due to a stronger yen and weaker stock prices following Britain's vote to leave the European Union, adding to headaches for policymakers already worried about sputtering economic growth.

The survey of workers like taxi drivers, hotel workers and restaurant staff - dubbed "economy watchers" for their proximity to consumer and retail trends - showed their confidence fell 1.8 points from the previous month to 41.2 in June. It was the lowest reading since October 2014, data released on Friday by the Cabinet Office showed.

Japanese policymakers and markets have been on high alert about the Brexit-induced market turmoil, prompting top currency diplomat Masatsugu Asakawa to warn yesterday that the government was ready to respond to any speculative moves in the foreign exchange market.

Sentiment in the service sector and the retail industry was especially low on fears that a stronger yen and lower stock prices triggered by the Brexit would dampen already weak consumer spending.

A respondent from the retail industry said: "There are more uncertainties in economic outlook following the Brexit, and the wealthy are refraining from spending. Even though the sales tax hike was delayed again, it's difficult to think that the situation would improve."

The outlook index, which indicates the level of confidence in future conditions, tumbled 5.8 points to 41.5 last month, the worst level since March 2014, as worries about a post-Brexit market turmoil and the global economy cast a shadow over sentiment in the service sector. Poor service-sector sentiment in June comes after data released earlier in the day showed gains in price-adjusted real wages slowed further in May.

The weak sentiment and sluggish wage growth are bad news for Prime Minister Shinzo Abe, who has struggled to beat two decades of deflation and boost spending through his reflationary Abenomics policy.

Said another respondent from the retail sector: "Wages aren't changing, bonuses aren't increasing, and consumers' desire to spend is lowering. They don't feel they want to buy anything, so the economy doesn't improve."

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 09, 2016, with the headline 'Japan's service-sector sentiment weakens on post-Brexit yen gain'. Print Edition | Subscribe