Japan Retail Sales Slide With End of Car Subsidies Looming

Japan Seen Needing $47 Billion Stimulus for Next Tax Bump
Photographer: Yuzuru Yoshikawa/Bloomberg

Japan’s retail sales fell more than economists forecast in July as a winding down of government subsidies for car purchases threatens to further damp consumer spending in coming months.

The 0.8 percent decline from a year earlier was the first drop in eight months and compared with the median estimate of a 0.1 percent fall in a Bloomberg News survey of 13 economists. From a month earlier, sales slid 1.5 percent, according to data released by the trade ministry in Tokyo today. Cooler weather played a role, the government said.

Weakness in consumer demand and declining exports may make it harder for the government to prevent the economic contraction forecast for this quarter by Bank of America Merrill Lynch and Credit Suisse Group AG. Most of 274.7 billion yen ($3.5 billion) of subsidies for purchases of fuel-efficient cars is spent, with RBS Securities Japan Ltd. saying the program may run out of money next month.

“We can expect a plunge in spending in the fourth quarter because of the end of eco-car subsidies,” said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo and a former central bank official.

The Nikkei 225 Stock Average fell 0.7 percent as of 10:07 a.m. in Tokyo.

Beer, Television

Television purchases declined after a boost a year earlier from digital broadcasting replacing analog, while beer sales slipped because of cooler weather, the ministry said. Fast Retailing Co., the seller of Uniqlo brand apparel, says lower temperatures have crimped demand for summer clothing. Car sales, meanwhile, gained 32.5 percent from a year earlier.

“The government should try to boost growth momentum through immediate fiscal stimulus,” said Takahiro Sekido, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo and a former Bank of Japan official. “In the second half, we will see a further slowdown in private consumption as a reflection of global uncertainty.”

Private consumption accounts for about 60 percent of Japan’s gross domestic product.

Smaller summer bonuses for workers this year may have contributed to the sales decline. Payouts by large companies, often equivalent to several months’ pay, fell 2.5 percent after rising in the previous two years, according to the Japan Business Federation, also known as Nippon Keidanren.

Passenger-vehicle sales will drop as much as one-fifth in the next quarter from a year earlier, after growing about 53 percent in the first seven months, according to analysts at BNP Paribas and IHS Automotive.

Subsidies Spent

Only about 10 percent of the money allocated for car subsidies rolled out from April remained unspent as of Aug. 27, according to the trade ministry. Carmakers such as Nissan Motor Co. are calling for additional stimulus as they lose state aid of as much as 100,000 yen per vehicle.

The Cabinet Office downgraded its assessment of the domestic economy for the first time in 10 months on Aug. 28 after shipments to the European Union fell 25 percent in July from a year earlier.

Japan’s economy, the world’s third-biggest, will grow 1 percent this quarter on an annualized basis after a 1.4 percent expansion in the previous three months, according to the median estimate of analysts surveyed by Bloomberg News. A minority of analysts forecast a contraction.

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