Japanese Retail Sales Disappoint

The domestic market in any economy is usually the largest contributor to that nation’s GDP figure. Japan has been mired in price deflation since the mid-1990s. Although the deflation has been regarded as “mild” according to a paper for the Bank for International Settlement. A consequence of price deflation is that consumers delay larger purchases for as long as possible in the knowledge that the eventual purchase price will be lower than it is today; this acts as a drag factor on domestic demand since producers don’t want goods that they can’t sell on their hands.

Figures just released from Japan’s Ministry of the Economy showed that retail sales had declined by 2.3% on a year-on-year basis; this was nearly twice as bad as most analysts had predicting. However, the month-on-month figure showed that retail sales were up by 1.6% over the January level.

The administration of Shinzo Abe has stated that boosting the economy is a key aim. As part of this, they have persuaded the Bank of Japan to set a target inflation figure of 2%. This is broadly in line with most other central banks, but in Japan’s case they are hoping to see inflation increase towards the target whereas most other banks are trying to constrain it to this level.

It may be that growth in the domestic sector can only be fostered if Japan is prepared to allow wages to rise. Nominal salaries have been declining in Japan, in part as a consequence of deflation.

Japan’s exports should be receiving a boost from the weaker Yen, although the Yen has strengthened recently over jitters in Europe over potential ramifications of the Cyprus bailout and its levy on larger savers and the effects of the Sequester in the USA.