Japan: V-shaped recovery is now more than complete for Japanese consumers (T. Okubo)

V-shaped recovery is now more than complete for Japanese consumers

Retail sales in Japan jumped by 2.9% month on month (mom) in June, sizably stronger than the prior market expectation (E 1.5%). The Japanese household has been an outperformer in Japan's V shaped recovery story and by June, the recovery is more than complete for this sector. After the jump in June, the level of retail sales is 1.3% higher than the level before the disaster.

Reconstruction demand is boosting retail sales

Detail suggests that retails sales are enjoying a disaster related rebound. Motor vehicle sales have expanded by 9.5% mom in June, following 14.8% mom expansion in May. Motor vehicle sales collapsed by 18.0% in March due to supply chain disruption, but the level of sales have now fully recovered. We expect vehicle sales to enjoy further expansion due to replacement demand. Machinery equipment sales have expanded by 11% in June and the level is sales is now the highest since November 2010. Reconstruction demands are likely to lie behind it. Other general merchandise, apparel sales have also returned to pre-disaster level.

Speed of expansion should lose steam in the next few months, however

Now that the recovery is complete, fundamentals such as wage growth should be the determinant of private consumption going forward. While we are not pessimistic on the trend of private consumption, a further meaningful expansion in private consumption will be hard to come by in the next few quarters. Fundamentals for Japanese household are not rosy. Corporate profit growth is likely to sluggish this year. Overall export growth in FY2011 is weak due to supply chain constraint and slowing emerging economy. Households are also likely to face some form of tax increases next year to help finance reconstruction. While we expect a particularly high economic growth for Japan in 2012 due to reconstruction demand, private consumption tends to lag behind the overall economic growth. For 2012, we expect private consumption to be a relative underperformer among major economic component. We expect private consumption to grow only by 1.4% yoy in 2012, while the economy overall should grow by 3.6%.

OKUBO Takuji