“Do not believe in official statistics,” Japanese retailers seem to be saying, as they cut earnings forecasts and warn of lackluster consumer spending, a key growth engine for Japan at a time when exports and factory output are stalling.
If you go by the larger-than-expected 2.9 percent gain in household spending in August — the first year-on-year rise in three months — then consumption looks like it is finally alive and well again, after a sales tax hike last year stifled the economy.
However, profits of retailers suggest the spending data, which has a small sample size, has not captured the full picture.
Restrained household consumption raises the stakes for a central bank policy meeting on Oct. 30 and for the government’s plan to flesh out new economic policies before the year-end.
“Consumer spending has ground to a halt,” Seven & I Holdings Co president Noritoshi Murata said.
“There are a lot of concerns about the global economy and not many positives for consumption. Weak spending could continue into the second half of the fiscal year,” Murata said.
Seven & I Holdings Co, which operates Japan’s ubiquitous 7-Eleven convenience stores, on Thursday trimmed its full-year profit forecast by 1.6 percent to ¥367 billion (US$3.05 billion) and cut its revenue forecast by 3.9 percent to ¥6.15 trillion, triggering a fall in its shares in Tokyo.
The main problem is wages are not rising fast enough to keep pace with rising food prices and consumers are starting to cut back on other goods.
Real wages, adjusted for inflation, rose 0.5 percent in July from a year earlier.
That was the first gain in 27 months, but wage growth subsequently slowed to 0.2 percent in August and summer bonuses fell from last year, government data shows.
Another problem is more workers are getting stuck in jobs with low pay.
Part-time and irregular workers comprised a record 37.4 percent of the workforce last year, according to Japan’s National Tax Bureau.
Irregular workers earn on average less than half of what regular full-time workers earn, tax data show.
The third problem is the government plans to raise the nationwide sales tax again, to 10 percent in 2017 from 8 percent and households are already changing their behavior.
“Shoppers are tightening their purse strings,” Onward Holdings Co Ltd senior managing director Masaaki Yoshizawa said.
“There is a lot of uncertainty about consumer spending, and another sales tax hike is on the way. Women are cutting back on clothes,” Yoshizawa said.
Onward Holdings had expected to make a ¥2.4 billion profit in the six months ended last month, but when it closed its books, operating profit was only ¥200 million.
Some economists worry consumer spending is now stuck in a prolonged period of very low growth.
In June and July, same-store sales at Fast Retailing Co’s Uniqlo clothing outlets in Japan fell from a year earlier before notching modest gains of 2.5 percent and 2.6 percent in August and last month, respectively.
Earnings from Japan’s retailers show consumer spending has undergone a reversal from the early days of Japanese Prime Minister Shinzo Abe’s administration.
Shortly after Abe took office late in 2012, the wealthy cashed in on a stock rally and went shopping. Unions got the pay increases they asked for and companies started raising retail prices.
Since then, the monetary and fiscal measures taken by Abe to rekindle Japan’s economy have delivered uneven results.
A sales tax hike last year to 8 percent from 5 percent helped tip the economy into a brief recession.
Now, the world’s third-largest economy is at risk of falling into its fourth recession in the past five years as exports, factory output and consumer spending stumble. And the retail sector is adapting to a return to more subdued household spending.
“Some companies are starting to realize they’ve actually driven away some customers by raising retail prices,” Mizuho Securities Co senior economist Norio Miyagawa said.
“The government’s initial growth strategy did not really expand the pie. Now the government is simply left trying to redistribute wealth,” Miyagawa said.
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