Japanese retail sales unexpectedly rose in May from a year earlier, signalling a slight recovery in personal consumption and keeping intact market expectations that the Bank of Japan will raise rates as early as August.
Traders are now focusing on upcoming indicators, including industrial output on Thursday, consumer prices and jobless figures on Friday and the BoJ's quarterly tankan survey next Monday, for further clues on the timing of the next rate hike.
Rising for the first time in eight months, retail sales advanced 0.1 percent in May from a year earlier, beating economists' median forecast for a 0.4 percent drop, the Ministry of Economy, Trade and Industry said on Wednesday.
"Overall, consumption may not be expanding rapidly as it did in the October-December and January-March quarters, but the latest data shows that it remains firm," said Azusa Kato, an economist at BNP Paribas.
Financial markets did not react much to the data, which provides clues to the course of personal consumption - a key component that makes up about 55 percent of Japan's economy. Compared with April, retail sales were up 0.5 percent on a seasonally adjusted basis.
Personal consumption has not picked up much despite Japan's steady economic recovery, which has largely been driven by the corporate sector. Some analysts worry that corporate activity may also be losing momentum as slowing exports to the United States have hurt industrial output in recent months.
The BoJ has said it will raise rates gradually to keep on top of inflation, and many analysts expect the next rate hike to come around August. A separate survey released on Wednesday showed that business sentiment at small and mid-sized firms worsened for the third straight month in June, boding ill for the BoJ's closely watched tankan business sentiment survey due out next week.
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