20000328

Japan retail sales slip but seen near bottom

TOKYO: Retail sales in Japan fell for the 35th straight month in February, reflecting persistently weak personal consumption, which must recover if the world's second-largest economy is to unlock its growth potential.

Japan's Ministry of International Trade and Industry (MITI) said on Monday that nationwide retail sales fell 0.2 percent in February from a year ago, while sales at larger stores, which are more sensitive to changes in consumer spending, fell 0.9 percent.

Large store sales were slightly better than a consensus forecast by economists of a 2.7 percent drop, offering modest hope that the economy may be set to pull out of its worst recession in half a century.

"Although February's data was still in negative territory, it is steadily improving," said Tomoko Fujii, economist at Nikko Salomon Smith Barney.

Sharp drops in sales of clothing, incidentals, and foodstuffs were mainly behind February's decline, while a rise in sales of automobiles, appliances and heating oil helped to offset the overall figure. Officials were also optimistic.

"Overall, despite month-to-month fluctuations, the trend in retail sales is heading towards a bottom," said a MITI official.

Noboru Yamaguchi, senior economist at Tokyo-Mitsubishi Securities, was even more upbeat. "The figures generally indicate a more convincing improvement in personal consumption."

"Consumption fell but the scale of the declines has been clearly shrinking since last autumn. The fact that this was a leap year also seems to have helped improve the February figures," he said.

The extra business day in February had already pushed department store sales higher by 1.6 percent from a year ago.

A turnaround in retail sales, which would indicate better personal consumption, is vital for Japan to put itself on track for a full economic recovery. Such spending is by far the largest component of gross domestic product, accounting for 60 percent.

The government, which faces elections this year, has set economic recovery as its top priority and is targeting GDP growth of 0.6 percent for the fiscal year ending March 31.

That has put the focus squarely on the economy's performance in the current January-March quarter, since it must grow by at least two percent in that period to hit the government's target and offset a slip into recession in the second half of 1999.

On Sunday, Economic Planning Agency chief Taichi Sakaiya said he was cautious on Japan's ability to meet its 0.6 percent growth target, saying the figure may be close but could miss the mark -- an embarrassing admission for a man who last year pledged repeatedly that the goal was within reach.

A Reuters survey of 19 economists last week forecast the government would just miss the goal with GDP rising 0.5 percent -- the first expansion in three years.

But GDP is seen growing at a rate of 1.2 percent in 2000/01, above the government's forecast of one percent.

While the government says a self-sustaining recovery is in the works, many analysts fret that as the economy distances itself from the late 1990s shocks of over-tight fiscal policy, near-meltdown of the banking sector and the Asian financial crisis, companies are pulling back from the painful restructuring needed for a durable expansion.

Data due later this week that should provide a better idea of the economy's health in the current quarter include Wednesday's report on February industrial production, which MITI forecasts will rise substantially and confirm that the improvement in the production cycle remains intact.

Price, unemployment, housing, and construction data will be released on Friday.-Reuters