Japan's retail sales resume falling amid virus resurgence

[TOKYO] Japanese retail sales dropped in November for the first time in two months, as a record surge in virus cases in recent weeks discouraged shoppers and darkened the outlook for the recovery.

Receipts fell 2 per cent from October, with Japan posting new daily highs in confirmed cases from around the middle of the month, the economy ministry reported Friday. Analysts had forecast an 0.8 per cent decrease.

Separate reports showed Tokyo consumer prices fell more than expected, even as the unemployment rate and a key metric of tightness in the labour market improved.

The jobs numbers were a good sign for workers, but sharp cuts to bonuses at the country's biggest companies this winter suggest households are likely to tighten their purse strings.

KEY INSIGHTS

Friday's data suggests renewed weakness in consumer spending, a key driver of Japan's rebound from its pandemic slump.

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Economists had expected consumption gains to slow as pent-up demand exhausted itself, but the virus's resurgence in recent weeks could push shoppers further into hibernation and send the recovery into reverse.

Most analysts see growth slowing this quarter to a fraction of summer's pace, and some are now flagging a risk the economy could shrink again in early 2021.

A US$709 billion stimulus package announced this month by Prime Minister Yoshihide Suga may help, but much of the new spending is for longer-term goals of making the economy more green and digital after the pandemic.

Record virus cases this month forced Mr Suga to suspend a travel incentive programme over the New-Year holiday and local leaders are even calling on older people to wear masks at home.

The moves, along with heightened anxiety, will hit restaurants, hotels and shops during a key spending season.

The Bank of Japan last week said it would review its monetary policy after nationwide prices fell at the fastest pace in 10 years last month.

Governor Haruhiko Kuroda said the review won't entail a policy overhaul, but he has a history of delivering surprises that could keep investors guessing.

Bloomberg economist Yuki Masujima said: "Looking ahead, we expect the unemployment rate to reach a peak in Q1 then fall gradually next year - assuming the latest acceleration in Covid-19 infections is brought under control in 1Q. With a vaccine on the horizon, risks to further deterioration next year appear lower."

Retail sales rose 0.7 per cent compared with the prior year when consumers were in funk following a hike to the sales tax. Economists projected a 1.8 per cent increase.

Sales at department stores and supermarkets slid 3.4 per cent from a year earlier.

Tokyo consumer prices excluding fresh food fell a more-than-expected 0.9 per cent, the most since 2010.

Excluding both fresh food and energy, prices in the capital dropped 0.4 per cent.

A separate report showed Japan's unemployment rate improved, falling to 2.9 per cent in November.

The jobs-to-applicant ratio rose to 1.06, improving for a second month The ratio means that job offers outnumbered applicants 106 to 100.

BLOOMBERG