Japan retail sales remain unchanged in May, decline on year

Japan’s retail sales remained unchanged in May, highly underscoring the difficulty Prime Minister Shinzo Abe faces in reviving consumer sentiments and boosting the nation's economic prospects.

Japan May retail sales remained flat at 0.0 percent m/m, largely in line with expectations, from -0.1 percent in April, data released by the Ministry of Trade showed Wednesday. This remained in consensus with Bloomberg’s median forecast for no change, according to a survey of economists. Sales of machinery and equipment led the gain while sectors including food and beverages were negative.

However, sales fell from a year ago period. From a year earlier, sales fell 1.9 percent, compared with a forecast decline of 1.6 percent in the survey. The biggest contributor to the drop was fuel, reflecting declines in oil prices. Even as oil prices have risen recently, the level is still lower as compared with the last year.

The report hints at a dwindling economy amid weakness in private consumption, exacerbating the risks for an economy that is struggling with a slowdown in exports and business investment. Sentiments have also dampened following Britain’s vote to exit the European Union last week that troubled global financial markets, strengthening the yen and pushing the stocks down.

"Consumers aren’t loosening their purse strings, despite a gradual improvement in real income," said Azusa Kato, Economist, BNP Paribas SA, Tokyo, prior to the release of the data.

A slump in sales of mini-cars in the wake of the fuel-economy test controversy also weighed somewhat on retail sales, Bloomberg reported, citing BNP Paribas’s Kato.

Motor vehicle sales declined 0.3 percent in May from April, although they rose 3.1 percent from a year earlier, according to the trade ministry’s report. Sales of mini cars continued to be sluggish, though sales of other passenger cars were firm partly because of new models.

Meanwhile, the Topix index has dropped more than 10 percent this month, plunging the most on June 24 with the Brexit vote in the aftermath of 2011 earthquake. The yen has strengthened more than 8 percent against the dollar this month.