-Marcel Thieliant, economist at Capital Economics
Japan's economy provided mixed data in the beginning of week, with retail sales overshooting expectations, while industrial output disappointed. Industrial output dropped 2.2% on month in May, compared with the median forecast for a 0.8% decrease. Meanwhile, Japanese consumers did not hold back from spending last month, resulting in retail sales growth for the second consecutive month. Sales jumped 3.0% on year in May, beating expectations for a 2.3% increase. Sales at large-scale retailers soared 5.3% on year, marking the second month of increases. That was consistent with data published last week, which showed household expenditures rose 4.8% on year in May. The recent data reinforced the view that consumers have returned to normal spending patterns after a temporary decline in demand following the sales tax hike from 5% to 8% in April last year. Stronger spending will give policymakers further confidence that their economic strategy is paying off.
The Japanese government hopes to underpin demand by increasing inflationary pressures, encouraging consumers to spend now rather than waiting for prices to decline - a sentiment that remained in the minds of Japanese consumers in Japan for 15 years.
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