Japan’s Demand for Services Rebounded in October
Japan’s demand for services rebounded in October, signaling that a better job market is supporting consumer spending.
The tertiary index, which captures 63 percent of the economy, advanced 0.5 percent from September, the Trade Ministry said today in Tokyo, matching the median forecast of 17 economists surveyed by Bloomberg News.
Japanese households drove growth in the world’s second- largest economy from July through September, capping two quarters of expansion that ended the country’s deepest postwar recession. Even as recent reports show government measures may be wearing off, analysts say steep cutbacks in consumers’ outlays are unlikely if improvements in the job market continue.
“Considering how steeply winter bonuses are likely to drop, consumers in the near term are in a tight position,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “But excluding bonuses, I think incomes have hit a bottom. Conditions for consumers will steadily improve.”
The yen traded at 89.56 per dollar at 8:56 a.m. in Tokyo from 89.64 before the report was published.
Among retailers benefiting from a better job market are Uniqlo. Same-store sales at the casual clothing chain owned by Fast Retailing Co. jumped 36 percent in October from a year ago.
Wages fell 1.7 percent from a year earlier in October, the smallest drop in 10 months, and the jobless rate unexpectedly slid to a six-month low.
Confidence among large service companies improved to minus 22 in December from minus 24, the Bank of Japan’s Tankan survey showed this week. The gauge rose for a third time since plunging to minus 31 in March, the lowest level since 1999 payday loans no teletrack.
Excess Labor
Despite advances in sentiment, employers may need to keep slashing wages to protect their profits. Firms still carry excess labor, and businesses expect costs of materials will rise even as they give discounts to attract customers at home, according to the survey.
“For companies to maintain high profit margins, they will have no choice but to keep cutting costs,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo.
Yamato Holdings Co., Japan’s biggest parcel delivery company, will hold down costs by cutting full-time jobs and replacing them with part-time ones, the Nikkei reported this month. Part-timers’ pay will be one-tenth that of full-timers, the newspaper said.
Expectations of a smaller winter bonus, which is typically paid in December and is often equivalent to several months of pay, have chilled sentiment among both merchants and consumers. In a sign that stimulus boosts are waning, household confidence slipped in November for the first time this year, and merchant sentiment slid to an eight-month low.
Japan’s largest companies plan to slash winter bonuses at the fastest pace on record, according to a Japan Business Federation survey.
“You can tell the economy’s not doing well when people go longer between haircuts,” said Keiichi Sugiura, a barber at the Modeste hair salon in Tokyo. “People who used to come every month now come every six weeks or couple of months.”
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