TOKYO Feeling bolder after a 50 percent jump in Tokyo share prices inflated his stock portfolio in recent months, Akira Otomo surprised his wife with a new kimono and matching traditional obi belt costing more than $8,000.
After a decade and a half of self-imposed austerity, there are signs that wealthier Japanese shoppers are spending more. Confidence is rising, and with it sales of high-end goods and clothes, giving retailers a boost.
"I'd given up on my stock portfolio, but I'm happy prices are finally getting back to where they were before the Lehman crisis," said Otomo, 56, who runs a human resources training company. "I'm looking to sell, and I'm sure I'll spend some of the profits," he added as he left an apparel shop in Tokyo's upscale Omotesando district.
The trigger has been Japan's radical gamble to end deflation under Prime Minister Shinzo Abe - a combination of aggressive monetary easing, currency devaluation and promises of reform dubbed "Abenomics."
Many retailers forecast higher profits for this year on improved sales of luxury goods and clothing. But some retailers and shoppers are unsure if spending will continue once the feel-good factor of higher stock prices fades. For many Japanese, wages remain depressed and employment prospects uncertain.
"The rich have money, but I don't feel the economy's getting better," said Eri Mori, a 42-year-old Osaka housewife. "I don't see salaries rising."
The stock market rally .T that has given Otomo the confidence to splurge was sparked by Abe's pledge to overhaul the Bank of Japan so it would ease monetary policy more aggressively. The BOJ delivered last week, agreeing to double the amount of government debt it holds over the next two years.
Abe is counting on the wealth effect from further gains in stock prices, encouraging investors to cash in and spend more.
"The sudden improvement in the stock market has led to a big rise in sales at our department stores for luxury brands and high-end goods like jewelry, precious metals and watches," said Ryoichi Yamamoto, president of J.Front Retailing Co (3086.T), which operates store chains like Daimaru and Matsuzakaya that do more business in Osaka and Nagoya.
The company sees that higher demand acting as a "tailwind" to drive up operating profit by close to a third to a record 40 billion yen ($404 million) in the year to next February.
Besides high-end merchants, companies such as Uniqlo-owner Fast Retailing Co (9983.T), clothing maker Onward Holdings Co (8016.T) and Sogo and Seibu department store owner Seven & I Holdings Co (3382.T) have seen better sales of bright, colorful, and patterned apparel this spring.
"The fact that products that can't be worn every day are flying off the shelves seems to indicate that prospects for the future are bright," Seven & I President Noritoshi Murata said as the retailer forecast a third straight year of record profits.
Fast Retailing and general retailer Aeon Co (8267.T) report their results later on Thursday.
FUTURE SEEN BRIGHTER
Japan's consumer confidence index hit its highest in more than five years in February, and many analysts see that as a sign that the economy is recovering from a slump caused from the fallout of Europe's debt crisis and a territorial spat last year with major trade partner China.
"I sell my own jewelry and, before, customers thought items priced 3,000-4,000 yen ($30-$40) were expensive, but recently I hear people saying that's cheap," said Makiko Tomitani, a 37-year-old freelance artisan in Osaka.
Looking for signs of a reviving economy, Japan's TV networks have checked out the length of women's skirts, changes in cosmetics use and even what alcohol people drink while admiring the seasonal cherry blossoms.
Abe scored a public relations victory last month when leading Japanese companies responded to his request to raise wages by nudging up bonus payments.
But for many workers base salaries are unchanged - and employers can easily cut bonuses in future. In addition, more than a third of the country's workforce are contract employees, who are paid less and don't have the benefits and security that full-time staff have.
In another sign of the uneven gains, overtime pay - a closely watched measure of corporate largesse - fell at the fastest pace in over three years in February, and cash earnings slid an annual 0.7 percent, reversing January's modest rise.
The BOJ has set a target of 2 percent inflation, but some retailers say they still risk losing business if they raise prices. The head of Nitori Holdings Co (9843.T), a leading furniture and home furnishings retailer that imports more than 80 percent of its cut-price products, said the company would not increase its prices even as the yen weakens, taking a hit to its margins rather than scare away shoppers.
And plans to raise a 5 percent sales tax to 8 percent in April 2014 and then to 10 percent in October 2015 may also be at the back of shoppers' minds, as economists say consumers may be buying now only to pull back after the tax hike takes effect.
Japan has seen this type of volatility before.
In 1997, the government raised the sales tax from 3 percent, a move many blame for pushing the country into recession.
($1 = 99.0050 Japanese yen)
(Additional reporting by Ritsuko Shimizu in Tokyo and Yoshiyuki Osada in Osaka; Editing by Ian Geoghegan)