- Taro Saito, senior economist at NLI Research Institute
Japan's retail sales rose more than expected in July, adding to tentative signs consumption will support the economy and drive it back to growth in the third quarter. Retail sales jumped 1.2% on month in July, according to the Ministry of Economy, Trade, and Industry, coming in higher than the expected pace of 0.6%. The annual rise in sales accelerated from 0.9% in June to 1.6% last month, overshooting the median consensus forecast of 1.1%. Data published shortly before the retail sales report, however, showed household spending dropping 0.2% on an annual basis in July, against the expected 0.9% rise. Consumer spending has been patchy since the Japanese government hiked the sales tax in April 2014, leading to a recession and driving a contraction in GDP growth last quarter.
A separate report showed Japan's inflation rate dropped to its lowest level in more than two years in July. The inflation rate in July was 0.2%, compared with the 0.4% a month earlier, hitting the lowest level since June 2013. Core inflation, excluding volatile components, remained flat. The gloomy data, coupled with weak exports due to China's slowdown, reinforces the dominant market view that any recovery from the 1.6% contraction in April-June will be modest.
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