Japan’s Merchant Sentiment Rises, Rebounding From August Slide

By Toru Fujioka

Oct. 8 (Bloomberg) -- Confidence among Japanese merchants rose in September, a boost economists say may not last as near- record unemployment and falling wages deter people from spending.

The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, climbed to 43.1, the Cabinet Office said today in Tokyo. The index dropped for the first time in eight months in August.

The improvement in sentiment doesn’t indicate the economy’s recovery from its worst postwar recession is gaining traction, economists said. The unemployment rate is close to a record high and wages have dropped for 15 months, which may compel households to tighten their purse strings.

“We need to see a clear improvement in the labor market and wages before sentiment gains momentum,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “Consumer spending will weaken as support from government measures fades.”

Japan’s economy expanded in the second quarter for the first time in more than a year, helped by exports and 25 trillion yen ($282 billion) in government stimulus packages. Economists expect growth to slow in coming months.

“We can’t be optimistic about the current state of the economy,” Deputy Prime Minister Naoto Kan said this week, adding that the government may need to compile an extra budget to support the nation’s weakening job market.

The jobless rate dropped to 5.5 percent in August from a record 5.7 percent in July. Winter bonuses for Japan’s large companies will fall 13.1 percent to about 660,000 yen ($7,472), the biggest drop since the survey began in 1970, the Institute of Labor Administration reported this week.

Imports Fall

In another sign of weak demand, imports fell by a record amount in August, causing the current-account surplus to widen, the Finance Ministry said in a report today.

Households are shifting to cheaper stores including Uniqlo Co. and turning their back on luxury brands. Gianni Versace SpA will close its three Japanese stores and review its entire business strategy, Federico Steiner, spokesman for Versace in Milan, said on Oct. 6.

The starting salary for graduates fresh out of college this year rose 0.09 percent to 208,306 yen, according to the business lobby Keidanren, the smallest gain since the survey started in 1966.

“The drop in starting salary is a direct reflection of how severe this recession is,” said Hideshi Nitta, manager of the labor policy bureau at the Keidanren in Tokyo. “Growth will probably remain tepid next year.”

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net