Japan's service sector sentiment jumped at a record pace in June, a government survey showed on Friday, with further improvement expected as consumer spending picks up on the back of the economy's recovery from the March earthquake. The data adds to evidence that the disaster's impact on consumption was not as bad as feared, after retailers including Seven & I Holdings raised their earnings forecasts this week, and underscores the Bank of Japan's view that the economy will likely resume a moderate recovery in the autumn.
"The pace of recovery in the index is faster than expected," said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute. "The index is expected to continue recovering supported by further improvement in consumer sentiment and expected demand related to post-quake reconstruction," he said. The survey of workers such as taxi drivers, hotel workers and restaurant staff - called "economy watchers" for their proximity to consumer and retail trends - showed their confidence about current economic conditions rose 13.6 points to 49.6. That marked the third straight month of improvement.
The increase, the biggest since comparable data became available in August 2001, pushed the index back to pre-quake levels and led the government to revise up its assessment of service sector sentiment. Sales of energy-efficient consumer electronics and casual apparel have also gotten a boost as shoppers brace for a long hot summer, the survey showed.
With the air conditioning turned down due to power shortages after the quake shut down several nuclear plants, the government is encouraging office workers to ditch their neckties and jackets in favour of lighter clothing. The BoJ is expected to hold off on easing monetary policy further and revise up its view of the economy next week, although it will strike a note of caution about signs of a global slowdown. Some analysts expect government spending for relief and reconstruction from the quake to support the economy, although this is not happening much now.
Separate BoJ data showed on Friday that Japanese bank lending fell 0.6 percent in June from the previous year, marking the 19th straight month of declines. The margin of decline was the smallest since December 2009. But that was because companies hit by weak sales in the immediate aftermath of the quake boosted lending for operating funds, rather than in response to an increase in reconstruction-related demand, a BoJ official said in a briefing.