Deflation May Finally Be a Thing of the Past in Japan

For the first time in four months, retail sales have risen in Japan. Much of this has been attributed to an increase in salaries and personal bonuses.

 Year-over-year retail sales for the month of August were 1.5% higher than in July, well above the 0.6% that economists had expected.

 There are better jobs available and higher wages for Japanese workers these days, which are being touted as the cause for the increase in spending. Personal spending has grown at an annual pace of 2.5% during the second quarter. This is expected to continue growing.

 “I’m looking for faster growth on the basis that the improvement in employment and wages is going to continue,” says Richard Jerram, chief economist for Japan at Macquarie Securities Company, “It looks as if just about everything that could go right is going right with the economic outlook.” The unemployment rate in Japan is declining, with roughly 97 out of 100 candidates finding a job. This is close to a 13-year high. Even temporary agencies are losing money, because they currently have to pay more to the employees that they outsource.

 “The improvement in employment and income has become increasingly apparent and consumer sentiment has turned upward,” Yasuyuki Sasaki, an analyst at Credit Suisse First Boston, said.

 Japan’s two largest retailers both reported increases between 18% and 24.5%. Department store stocks are on the rise as well, with the largest department store operator, Takashimaya Co., reporting a 3.3% increase in its shares.

 The average Japanese salary rose 1.3% in the month of July and, coupled with summer bonuses, caused spending to soar.

 In addition, there is talk that deflation, which has plagued the country for almost a decade, might be coming to an end, which is encouraging for residents.

 “There is a high chance that core consumer prices will turn to be positive toward the end of the year,” Bank of Japan Governor, Toshihiko Fukui, said, “As a trend, we expect core prices will keep gaining after that period.”

 The Bank of Japan is expected to release a business confidence report in early October, and I’ll be watching closely to see what it reveals.