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Japan Retail Sales Dip Fuels Rate Hike Doubts

Retail sales in Japan fell unexpectedly in November from a year earlier, underlining the view that consumption remains a weak link in the economic recovery and trimming the chances of an interest rate hike in January.

Retail sales last month fell 0.1% from the same month last year, compared with economists' median forecast for a rise of 0.5%, data from the Ministry of Economy, Trade and Industry showed on Wednesday.

It was the first such fall in four months. In October, retail sales rose 0.1% from a year earlier. "I think the data provides an important key in fathoming the Bank of Japan's thinking on its monetary policy now, and the latest figure lowers the possibility of a rate hike in January," said Takumi Tsunoda, an economist at Shinkin Central Bank Research Institute.

"Warm weather appears to have slowed sales of winter clothes and other seasonal goods. A decline in gasoline prices also pushed down the fuel sales figure," said Tsunoda.

However, Tsunoda and other economists said the breakdown of the data may point to better figures ahead. "Sales of clothing, which have been weak, are rising and other items also
increased. Thus the data showed signs of an improvement in consumption," said Yoshimasa Maruyama, economist at BNP Paribas.

The financial markets reacted little to the data, with the yen edging up against the dollar and the Nikkei 225 Average opening higher.

Japanese consumption has been sluggish over the past several months, and many economists have cited unstable weather and sluggishness in wage rises as possible factors.

Bank of Japan Governor Toshihiko Fukui has expressed caution over signs of weakness in personal consumption and price growth, while stressing that future rate hikes would depend on the BOJ's analysis of economic and price conditions.

A ministry official said that in November, retail sales fell mainly due to warm weather and cheaper vegetable prices.

Compared with October on a seasonally adjusted basis, retail sales rose 0.1%. "The headline figure was somewhat weaker than we expected. But coupled with (Tuesday's) household spending data, it seems personal consumption has overcome its worst period as the negative impact of one-off factors such as bad summer weather tapers off and employment conditions improve," said Takahide Kiuchi, a senior economist at Nomura Securities.

The central bank kept its key overnight call rate target unchanged at 0.25% at its policy meeting last week after raising it from zero in July in its first rate hike in six years.

Many traders had bet on a policy shift in January, but such expectations have receded following Fukui's comments on weak consumption and price trends at a news conference held after the policy meeting.

Data on Tuesday showed Japan's core consumer price index (CPI), which excludes volatile fresh food prices, rose 0.2% in November from a year earlier, much as expected.

Separate data showed on Tuesday that overall household spending fell less-than-expected 0.7 percent in November from a year earlier. It still marked the 11th straight month of annual declines.

Revised data showed earlier this month that Japan's economy grew a softer-than-expected 0.2% in July-September, or an annualized 0.8% due to sluggish consumption.

But economists expect the private consumption to rebound in October-December from the previous quarter.

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