Japan May Retail Sales Rise Faster Than Expected As COVID Curbs Ease

Japanese retail sales rose for a third straight month in May, reinforcing views that strong consumption will lead an economic rebound this quarter, although rising inflation poses a risk to household spending for the rest of 2022.

Retail sales rose 3.6% in May from a year earlier, government data showed on Wednesday, slightly higher than the median market forecast for a 3.3% gain.

It followed an upwardly revised 3.1% increase in April and marked the third month of advancement since March, when the government lifted all coronavirus restrictions on face-to-face services.

On a seasonally-adjusted month-on-month basis, retail sales advanced 0.6% in May, after a 1.0% growth in April.

Japanese consumers dined-out and took domestic trips during the "Golden Week" holiday season towards early May, enjoying the break free from COVID-19 curbs for the first time since 2019.

The rebound in service consumption and the broader household spending likely boosted the world's third-largest economy, with analysts in the latest Reuters poll expecting an annualised 4.1% growth in Japan's gross domestic product this quarter after a 0.5% contraction in January-March.

However, the rising cost of living due to higher commodity prices and the yen's decline to 24-year-lows have stoked fears Japan's consumption-led recovery could be undermined throughout the rest of this year.

Japan's consumer confidence index fell in June for the first time in three months, to 32.1 from May's 34.1, separate government data showed on Wednesday. It hit the lowest since January 2021, when rising coronavirus cases depressed consumers' appetite for spending.

"A continuous rise in the costs of electricity, food and other daily goods likely curbed" household sentiment, a Cabinet Office official told a media briefing on the index, compiled based on a June 4-20 survey.

Consumer inflation has taken centre stage heading into next month's national upper house election, hitting Prime Minister Fumio Kishida's approval ratings although his ruling party is still widely expected to claim victory.

Although Japan is gradually reopening its economy, "consumers are under pressure from weak wage growth on the one hand and rising energy and food prices on the other," Stefan Angrick, senior economist at Moody's Analytics, wrote in a note.

"This leaves the recovery vulnerable to setbacks."