Retail sales in the world's third-largest economy rose an annual 0.9 percent in June, beating expectations for a 0.5 percent rise but still slowing sharply from the previous month, government data showed on Wednesday.
June's report marked the second month of weakening demand; retail sales rose 3 percent on year in May, down from April's 5 percent gain.
"The renewed drop in retail sales in June adds to the evidence that consumer spending fell last quarter," said Marcel Thieliant, Japan economist at Capital Economics, in a note.
"What's more, sales values have been flattered by a rebound in gasoline prices. Retail gasoline prices have risen by 6 percent since their January peak. Since fuel sales account for around 8 percent of total retail sales, this has lifted aggregate sales by around 0.5 percent."
Wednesday's data comes days after the government downgraded its outlook for consumer prices. Officials now expect a 0.6 percent rise for the 2015 fiscal year, compared to previous estimates for a 1.4 percent increase, due to a continued declines in oil prices.
Japan is one of the largest net importers of crude oil so a lower energy bill means consumer prices rise more slowly, a major obstacle to the central bank's goal of achieving 2 percent inflation by the first half of fiscal 2016.
However, investors shouldn't pay too much attention to retail sales as an indicator of Japanese consumer spending, according to Capital Economics.
"We would instead pay more attention to core household spending, due on Friday. This measure of consumer expenditure has done a good job lately in explaining moves in the Cabinet Office's synthetic consumption expenditure, the monthly equivalent of private consumption as measured in the national accounts."
But June household spending data isn't expected to paint a bright picture either. According to a Reuters poll of economists, spending grew 1.7 percent on-year, compared to May's 4.8 percent gain.
Despite recent positive surprises like strong June exports, economists say a sustained economic recovery remains far off.
"The steady improvement in the Cabinet Office's synthetic consumption index have reversed in recent months, with consumer sentiment data also displaying signs of rolling over. Whether this develops into a more sustained retrenchment is likely to depend on consumers' reaction to rebound in real income trends, as base wage rises start to outstrip core consumer price inflation," Standard Life Investments said in a Wednesday report.
This should raise the need for further supportive monetary policy action, the firm said, a view shared by the majority of strategists.
But Bank of Japan Governor Haruhiko Kuroda doesn't seem to agree. Last week, he dismissed the notion of additional stimulus based on confidence that the economy would hit 2 percent inflation next year.