July Retail Sales Fall 2.2% in Japan

Retail sales in Japan fell 2.2% in July from a year earlier for their biggest decline in more than two years, hit by a prolonged rainy season and an earthquake, the Ministry of Economy, Trade and Industry said on Thursday.

The decline, which followed a 0.4% drop in June, was the ninth in the past 10 months. It was also the largest since February 2005 when sales tumbled 2.8%.

Economists polled by Thomson IFR were expecting retail sales to climb 0.5% from the year earlier period.

Despite the big drop, the ministry believes the trend in retail sales remains flat.

"We do not think the trend has turned weak because temporary factors such as the prolonged rainy season, the fewer weekends and the July 16 earthquake affected sales," an METI official said.

According to the ministry's industry survey, sales of beverage and air conditioners have been brisk in August, thanks to the hot weather.

In July, sales of clothing fell 9.7%, the biggest decline since October 2001 when sales tumbled 10.0%.

"The large decline was largely attributable to the prolonged rainy season and the typhoons," the official said.

Vehicle sales fell 4.8% as Japanese automakers stopped assembling cars for several days after a major earthquake crippled the flagship plant of Riken, a major supplier of key engine components to car makers.

Kyohei Morita, senior economist at Nomura Securities Financial and Economic Research Center, said a June tax hike was another major factor behind the fall in July retail sales.

"An effect of the tax raise in June has appeared in consumers' purchasing behavior in the data. Especially department sales sagged as the unit price of an item is higher than at supermarkets. Higher-cost items tend to be influenced easily (by reduced income because of the tax raise)," said Morita.

"But private consumption as a whole is on a recovery trend although its pace is very slow as the jobless rate is improving while growth in wages is sluggish," he added.

Sales at large retail stores were down 3.8% after adjustments for the change in the number of stores, the fourth fall in five months, and dropped 2.5% on an unadjusted basis, the ministry said.

In particular, sales at large department stores, including industry leader Takashimaya, dropped 5.7% on an unadjusted basis. That was the biggest fall since February 2005 when sales were down by 7.3%.

Sales at the wholesale level jumped 6.0%, and commercial sales -- or combined sales at the wholesale and retail levels -- were up 4.1%, the ministry said.