Japan retail growth slows as wages continue to disappoint

A child reaches for a pair of shoes at a shoe store on a shopping street in Tokyo.
A child reaches for a pair of shoes at a shoe store on a shopping street in Tokyo. PHOTO: REUTERS

TOKYO (BLOOMBERG) - Japan's retail sales growth slowed in May compared to last year, signaling that consumers are still reluctant to open their wallets.

Retail sales rose 2 per cent in May from a year ago after rising 3.2 per cent in the previous month. The biggest contributors to the rise were purchases of motor vehicles, followed by fuel, medicine and toiletries, according to the economy ministry.  Measured month-on-month, sales fell 1.6 per cent from April, when they rose 1.4 percent.

Japan's economy has had a five-quarter run of growth, propelled by improving exports and firming domestic demand. But with wages stagnant or falling for years, growth in private spending has been weak, and without a rebound in pay, it's unlikely that consumers will start spending a lot more.

A new consumption index rose 3.7 per cent in May from a year ago, a slowdown from April. That's according to the JCB Consumption Now index, which uses credit card data.

"It's hard to expect consumption to be a driver of growth," said Yasutoshi Nagai, chief economist at Daiwa Securities in Tokyo. "You see many stores are cutting prices because they can't sell their goods."

The pace of wage growth is slow, and "I think inflation will pick up toward 1 per cent, which will make real earnings fall and weigh on real consumption," he said. "As online sales increase, I'm not sure how much the data are reflecting the reality."

Sales at department stores and supermarkets dropped 0.6 per cent in May from a year ago.

Summer bonuses at major companies were almost 5 per cent lower this year compared with last year, according to a preliminary report released by the Japan Business Federation.