Looks like more of the same for Japan’s economy — which is still struggling to regain its footing after a recession last year. Meanwhile, government and monetary officials say: What me worry?
March retail sales fell at their fastest annual pace in 17 years as Japanese consumers pinched yen a year after a controversial sales tax increase. The latest indicator follows other data that hints the Bank of Japan will be forced to take further steps to stimulate the economy later this year.
Retail sales skidded 9.7% from the same month a year earlier, according to government stats. The tumble was far worse than consensus estimates by some analysts, though a tax-driven sales slide had been expected. The tepid state of affairs was underscored by the fact that month-on-month sales in March declined 1.9% on a seasonally adjusted basis. Private consumption makes up 60% of Japan’s GDP.
“It was clearly disappointing,” Masamichi Adachi, a senior economist at JP Morgan in Tokyo told Reuters. “The March figure suggests we were too optimistic we’d see a pickup in early spring,” he said, adding that consumers might be feeling a deterioration in purchasing power amid rising prices.
More potentially disappointing numbers — industrial industrial production, inflation and employment — are due out this week. If the reports are bad, it will increase pressure on the BOJ to keep sparking the economy in the wake of a sales tax increase in April last year that chilled consumer spending.
None of this, however, seems to be worrying Prime Minister Shinzo Abe’s government or the central bank. The country’s vice economy minister, Yasutoshi Nishimura, said Tuesday that the BOJ and government agencies are on the same page when it comes to current monetary policy. He asserted that Japan’s inflation-trend target remains intact. Nishimura also downplays suggestions that there’s a need for the BOJ’s policy-setting meeting to do anything when it meets Thursday.
Nishimura says he wouldn’t be surprised if the 2% inflation target was reached a bit later than the central bank’s time frame which focuses on the current fiscal year through next March.
“That could be within expectations, given that the decline in oil prices was beyond our expectations,” Nishimura told Reuters in an interview. “Taking all that into account, somewhat of a delay would not be a big deal.”
Most observers predict the BOJ will keep its monetary stimulus measures of the back burner when it meets on Thursday though its inflation forecast for the current fiscal year will likely be trimmed.
Fitch Ratings downgraded Japan’s credit rating by one notch on Monday after the government failed to take steps in this fiscal year’s budget to offset a delay in increasing the sales tax.