Retail sales in Japan rose 0.9% in three months in October

Japan’s October retail sales were lower than expected but increased for the first time in three months, and underlying private consumption trends indicate pressures on a fragile economic recovery continue despite easing restrictions on COVID-19.

Key Points:

October retail sales increased 0.9% y/y against the forecast + 1.1%.
Retail Sales Growth 1.1% MoM Seasonally Adjusted
Consumption has not yet recovered after easing COVID restrictions

While analysts expect the world’s third-largest economy to rebound this quarter after forecasting a further contraction in July-September on rising household spending, supply concerns to export-oriented companies remain looming. “However, people continue to fear the new wave of viruses and they are not actively going out and not spending,” said Masato Koike, chief economist at Daiichi Life Research Institute, adding that stagnant wage growth is another obstacle to sustainable consumption.

Official data released on Monday showed retail sales rose 0.9% year-over-year in October, while the market average forecast was up 1.1%. This comes after an upwardly revised 0.5% decline in September.

Sales of fuels driven by rising petroleum product prices rose 25.9%, increasing overall retail trade, while sales of non-fuel commodities declined 1.2% year-over-year. Surprisingly, car sales fell 19.5% year over year due to supply constraints, the biggest monthly decline since January 2011, according to government official’s retail sales increased 1.1% in October after a 2.8% upward revision in September on a seasonally adjusted basis compared to the previous month.

Japan has eased corona virus-related restrictions on restaurant business hours, large events, and border controls as infections plummet and more than three-quarters of the population have completed vaccinations. But private-sector statistics show that consumer spending returns for October are gradual, with analysts saying it will take longer to fully recover in sectors hit hard by the pandemic, such as face-to-face services. “There are signs that consumers are finally losing their mind as mobility begins to exceed 2020 levels in November,” said Marcel Thiliant, chief Japanese economist at

Capital Economics. “Service spending should finally start to recover significantly.”

To accelerate Japan’s sluggish economic recovery, earlier this month the government announced a record $490 billion stimulus package, including cash aid to households with children and COVID hit business grants.