"Retails sales don't indicate that Japan's economy is going to have a solid recovery or that inflation will clearly pick up".- Hiroshi Miyazaki, Mitsubishi UFJ Morgan Stanley
Japanese retail sales dropped in April for the second consecutive month, on the back of falling fuel prices and lower sales of household electronics, bolstering the argument that a nationwide sales tax increase scheduled for April next year should be delayed. The Ministry of Economy, Trade and Industry reported that retail sales slipped 0.8% on year-on-year basis in April, after a revised 1.0% drop in the previous month, while the median market forecast stayed for a 1.2% annual decline. On month, retail sales were flat after seasonal adjustment, and data showed that recent sales have fallen on an annualized basis for five of the past six months.
Retail sales, a proxy for consumer spending, are declining at a time of great uncertainty for the Japanese economy. Japan barely avoided recession in the first quarter, but has fallen back into deflation, stoking fears that the government is running out of options to stimulate the economy. Prime Minister Shinzo Abe told finance leaders at last week's Group of Seven summit that there is a significant risk of the world economy falling into a crisis on the scale of the 2008 financial crisis if the right policy measures are not taken. This includes, among other things, delaying a planned sales tax hike. According to reports Shinzo Abe plans to delay the increase to October 2019, some four years later than originally scheduled, to sustain Japan's economic recovery.