Daily Management Review

Retail Sale In Japan Continued Its Drop In May Because Of Covid-19 Restrictions


Retail Sale In Japan Continued Its Drop In May Because Of Covid-19 Restrictions
Retail sale, one of the important components of Japanese economy, dropped in the month of May in double digits, the second straight month of drop, even as consumer confidence and economic recovery prospects have been delivered a severe blow because of the novel coronavirus pandemic and related lockdown measures imposed to stop the spread of the pandemic.
The continued slump in demand in Japan has also prodded analysts to raise concerns of risks to the third largest economy of the world remaining in recession for a longer period than expected initially and the prospects of a complete revival getting slower.
There was a 12.3 per cent year on year drop in retail sale in the country in the month of May. 
According to trade ministry data released on Monday showed that the major hit to retail sales was because of a drop in spending on big ticket items such as cars in addition to spending cuts by consumers on clothing and general merchandise.
Earlier in April, there was 13.9 per cent year on year drop in retail sale in which was the highest such monthly drop since March 1998. That was even slower than the analysts’ expectation of a drop of 11.6 per cent in retail sales.
Policy makers of Japan are pinning their hopes of an economic revival on the rebounding of consumer spending in retail which accounts for more than half of the total economy of the country. Policy makers hope that such a rebound will help to spur growth amidst the uncertainty over the global demand outlook which is set to delay a global recovery of demand.
The retail sales in May however recorded a growth compared to April – the first in three months, with a seasonally adjusted growth of 2.1 per cent. There was a 9.9 per cent drop in retail sale in April compared to the previous month. 
"Although consumption has picked up a little, there was a strong sense of caution towards the infection and customers were slow to come back," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research.
There can be “revenge spending” by consumers because of the sifting of a state of emergency imposed in May as well as cash payouts of 100,000 yen ($933) per citizen that was granted by the government in response to the pandemic, says some analysts. Additionally, consumers are also getting more accustomed to the social distancing measures while purchasing particularly in crowded shopping malls and other outdoor places.
Only one of her friends has received the government payout so far, said Midori, a 29-year-old worker at an electric instrument maker who declined to give her last name, according to a report in Reuters. "I think consumption will decline compared to before the coronavirus outbreak," she said on Saturday while going shopping in Yokohama. She added that she plans to make an investment with half of the cash handout and spend the other half on daily life essentials.
Analysts have predicted a contraction of the Japanese economy in the current quarter by more than 20 per cent on an annualized basis which will be the third consecutive quarter of contraction of the economy because of economic activities being hit by lockdown and other restrictive measures that were imposed from April through late May.