Japan retail sales jump, further gains difficult

TOKYO: Japan's retail sales climbed in February at the fastest pace in a year and a half as subsidies on cars and higher fuel prices push up sales, but further gains are unlikely as companies shun requests for higher pay.

The 3.5 percent rise in retail sales in the year to February blew past expectations for a 1.3 percent annual increase and marked the biggest gain since a 4.3 percent gain in the year to August 2010, the ministry of economy and trade said on Thursday.

Still, economists were pessimistic about the chance of personal consumption improving further due to a lacklustre labour market, suggesting that deflationary pressure will be difficult to overcome.

"Based on this evidence, I would not say the household sector is improving, because labour union negotiations for higher pay are not going well," said Toshihiro Nagahama, chief economist at Dai-ichi Life Research Institute.

"The move in February is more about government subsidies."

Car sales surged 21.4 percent in February from a year earlier. This was slower than a 24.1 percent rise in the year to January, but marked the second month that sales growth was above 20 percent.

In December, automakers introduced new energy-efficient models that qualify for government subsidies and this is attracting buyers at the start of the year.

Sales of fuel rose an annual 4.8 percent after falling 0.5 percent in the year to January as higher crude oil prices and demand for heating fuel due to cold weather pushed up sales.

Compared to the previous month, retail sales rose 2.0 percent, slower than a 3.1 percent gain in January, the data showed.

During annual wage negotiations between companies and labour unions, most car and electronics makers rejected requests for higher wages and bonuses as they eye competition with South Korean and Chinese firms.

The Bank of Japan surprised markets last month by easing monetary policy and setting a 1 percent inflation goal, suggesting a more vigorous efforts to beat deflation, which has been plaguing Japan for more than a decade.