By Jason Clenfield and Mayumi Otsuma
March 27 (Bloomberg) -- Japan’s retail sales fell the most in seven years in February and the economy moved closer to deflation as pay cuts and the specter of job losses discouraged spending by consumers.
Sales declined 5.8 percent from a year earlier, the Trade Ministry said today in Tokyo. Consumer prices excluding fresh food were unchanged from a year earlier, the statistics bureau said.
An unprecedented drop in exports is forcing companies to fire workers and cut wages, weakening household spending and pushing the nation closer to its worst recession in the postwar era. A shrinking economy may herald a return to the deflation that plagued Japan for almost a decade until 2005.
“Clearly the consumer has taken a shock,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. “The pain in manufacturing has led to greater insecurity, and it seems to have damaged consumer spending.”
Investors shrugged off the retail drop, which was worse than the 3 percent economists predicted. The Topix index rose 1.7 percent at 10:32 a.m. in Tokyo, heading for its best week in more than 16 years as better-than-expected earnings by U.S. companies fueled speculation the global recession is abating. The yen was little changed at 98.68 per dollar.
While unemployment hasn’t risen as much as in the U.S. or Europe, workers are facing wage declines that are leaving them with less money to spend, forcing retailers to lower prices.
Store Discounts
Aeon Co., Japan’s largest supermarket operator, last week said it will offer discounts on 5,100 items this month. Rivals Ito-Yokado Co. and Seiyu Ltd. already cut prices of food, clothing and household products this month.
Excluding food and energy, prices fell 0.1 percent in February, a second monthly decline. Finance Minister Kaoru Yosano said it was “too early” to conclude that the drop meant Japan has slid back to deflation.
Core prices in Tokyo rose 0.4 percent in March from a year earlier, slower than the 0.6 percent in February.
“There are many reasons we have to worry about a return of deflation,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “Companies may race to discount to get rid of inventories if they keep posting losses, and wage cuts and bankruptcies will spread in coming months.”
Wages dropped for a third month in January. Overtime pay fell by a record 14.8 percent as companies shut factory lines and canceled work shifts.
‘Running Into Trouble’
“The last few years were the good years, and pay didn’t rise,” said Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo. “Now you’ve got overtime and bonuses falling and people are running into trouble.”
J. Front Retailing Co., the holding company that operates department stores Daimaru Inc. and Matsuzakaya Co., said sales slid 15 percent in February as shoppers cut back on clothing and luxury items.
Still, the retail slump may have been overstated because there were fewer shopping days in February compared with the same month in 2008, a leap year. About half the declines were owing to a drop in revenue at gasoline retailers, reflecting crude oil’s 59 percent slide last month from a year earlier.
Also, the retail report doesn’t account for the growing share of money spent through the internet or on services.
Consumer spending fell 0.4 percent last quarter from the previous three months, a fraction of the record 13.8 percent drop in exports that drove the worst quarterly contraction in gross domestic product since the 1974 oil crisis.
The resilience of the job market may be the reason consumers haven’t pulled back further. The export slump has yet to trigger job losses of the scale seen in the U.S., where the unemployment rate jumped to 8.1 percent last month. Japan’s jobless rate has risen 0.3 percentage point to 4.1 percent since the recession deepened in October.
To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Toru Fujioka in Tokyo at tfujioka1@bloomberg.net
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