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Japanese retail sales fell more than expected in June from a year earlier, suggesting that worsening job and income conditions were offsetting the positive effects on spending of government stimulus measures.
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The outlook for consumption is weak with summer bonus payments likely to fall from last year's levels, which may add to downward pressure on prices as Japan suffers its second spell of deflation in a decade.
"The government has taken various measures to stimulate demand but the effect isn't spreading broadly to the economy," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"With wages falling and summer bonuses on the decline, consumers are in no mood to spend. The effect of government payouts to households is already tapering off."
Retail sales fell 3.0 percent in June from the same month a year earlier, more than a median market forecast for a 2.5 percent decline, data showed on Wednesday, marking the 10th straight month of falls.
Japan's economy is expected to have grown a modest 0.4 percent in the April-June quarter after a record 3.8 percent decline in the previous quarter.
But analysts expect any recovery to be fragile as many companies slash jobs and cut back on capital spending, weakening domestic demand.
Weaker domestic demand helped drive a record drop in Japanese core consumer prices in May. Figures due on Friday are expected to show nationwide core consumer prices fell 1.7 percent in June from a year earlier, more than the 1.1 percent drop in May.
The unemployment rate is approaching the record 5.5 percent hit earlier this decade, threatening to overwhelm government efforts to revive spending.
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The government has decided to pay subsidies for environment-friendly cars and energy-saving home appliances, as well as offering one-time payouts to households as part of its stimulus package compiled to beat a severe recession.
Data is a real-time snapshot *Data is delayed at least 15 minutes