Household confidence in the economy for Japan had been slipping in recent months, but that appears to be turning around now. Recent retail sales in June highlighted more spending. While the spending boost was focused on appliances, cosmetics, and fuels, it is a good sign that many families and households throughout the country are feeling confident in the economy overall.
A Continuing Trend
June’s numbers marked the eighth straight month for the upward trend in retail sales, indicating that the economy is truly on an upward trajectory. The average estimates for annual gains are 1.6 percent and June’s numbers peaked out at 1.8 percent; this comes on the heels of a 0.6 percent increase in annual sales numbers for May.
Keeping in mind seasonally adjusted numbers, though, May actually saw a decrease of 1.7 percent, but June rebounded nicely to 1.5 percent. The overall economy in Japan was seeing strong growth for a number of years, such as had not been seen since the 1980s, but at the beginning of this year a contraction took place, leading to some pessimism and households cutting their spending.
June’s numbers marked the eighth straight month for the upward trend in retail sales, indicating that the economy is truly on an upward trajectory.
The economy has been expected to bounce back during the second and third quarters of this year and the initial results are highlighting just that. However, consumer spending is not as robust due to some external factors, including the Bank of Japan’s inability to properly manage low inflation, among other issues.
What This Means for Small Businesses in Japan
Japan has been a strong beacon for small business growth during the past decade, and while the BOJ (Bank of Japan) has been easing monetary lending and keeping interest rates at historically low levels, thus hampering inflationary growth, this recent contraction caused some small businesses to question their long-term options.
For short-term gains, the news of retail sales throughout the country are a positive sign that the economy is still strong and that there will not likely be any permanent or sustained contraction. For long-term focus, the BOJ must begin to manage low inflation more effectively in order to avoid future economic ramifications, and some investors believe that maintaining such low interest rates is actually harmful to those long-term expectations.
A Tight Labor Market
Many laborers throughout the country were receiving their summer bonus payments, which often helps to boost spending. Also, because labor is tight -meaning there are fewer qualified candidates to fill many viable positions- that means there’s more confidence among employees that they will maintain their jobs, which also helps to spur economic spending. When employees worry about job stability, it can begin dragging on the economy as a whole.
The current jobless rate is listed as 2.2 percent, which sits at a 25-year low. Still, many are part-time workers, which may have a direct impact on short-term spending, especially if those workers are concerned about their ability to pay basic living expenses. With inflation remaining low, it’s not putting major pressure on wages, which means raises may not be coming forth as readily, which also puts more pressure on the economy and spending habits.
The Bottom Line
Overall, Japan’s business climate remains strong and its economy appears to be on solid ground, but the Bank of Japan will need to be more communicative about its processes and what its plans are for the future with regard to inflation and interest rates. With fewer viable candidates for jobs and flat wage increases, these are factors that could impact spending in the coming months.
Retail sales do indicate, though, that consumer confidence is on the rise and that’s a positive sign for any small business in Japan or that’s looking to establish itself in this country.