* Champagne, fashion, fast food point to strong consumption
* Conventional indicators slow to capture state of economy
* Spending already recovering from April sales tax hike
(Adds link for graphic, updates UTokyo index in 26th paragraph)
By Stanley White and Izumi Nakagawa
TOKYO, June 13 Bartender Yoshiro Tsuneoka smiled
with satisfaction between popping open bottles of champagne. It
was midweek, 8 pm, and business was good at the tiny bar in
Watching a bevy of young professionals quaffing sparkling
wine, there was little sign that an increase in Japan's sales
tax in April caused anything more than a hiccup in the economy.
"Sales have been doing well for a while now and we've
noticed no change after the tax increase," Tsuneoka said above
the sound of clinking glasses. "We get a broad range of
customers, and their spending hasn't changed."
Japan needs people spending with confidence if a radical
strategy adopted by Prime Minister Shinzo Abe is to succeed in
breaking the economy free of two decades of deflation and
Government data covering the period after the tax was
increased to 8 percent from 5 percent at the start of April has
begun to trickle in. Household spending and retail sales in
April dropped the most in three years.
But policymakers need to wait until July or so for a fuller
picture of the tax impact.
For the time being, champagne sales and other untraditional
measures may offer a good early read on consumption, which makes
up 60 percent of the economy.
A sharper downturn in spending could have big consequences,
potentially prompting the Bank of Japan to increase its massive
monetary stimulus and complicating Abe's attempts to rein in the
developed world's biggest debt burden.
Politicians painfully remember the deep recession that
followed the last tax hike in 1997 - although that downturn
coincided with the Asian financial crisis.
If the economy re-gathers pace after absorbing the initial
impact of the sales tax, it would allow Abe to focus on reforms
to boost Japan's long-term growth, and make it easier for him
to decide later this year whether to go ahead with a planned
second increase in the tax.
Bank of Japan mandarins are known to keep tabs on informal
indicators, like the price of a budget haircut or "gyudon" bowls
of stewed beef on rice. How easily businesses can pass higher
costs on to consumers is fundamental to the central bank's drive
to generate 2 percent inflation.
TOUCH OF INDULGENCE
Whereas people with a taste for champagne might not be
representative of the average Japanese household, the IT startup
employees and web designers drinking at Tsuneoka's bar are not
especially wealthy either.
But they have a choice what to do with their money, and
clearly prefer to keep on spending for the temporary pleasure
given by the imported bubbly.
Paying less than 1,000 yen ($9.80) a glass, they are only
drinking a mid-tier label, not the fancier stuff costing 20 to
70 percent more.
Japan's imports of champagne and other sparkling wine
climbed 18.8 percent by volume in April from a year earlier,
barely slowing from March's 21.1 percent rise and extending a
series of increases that began late last year.
This is in line with brisk sales in what advertisers call
the "petite luxury" market, where slapping a "premium" label on
a product can help it fetch a higher price.
Take the example, of rice balls, or onigiri, sold at
Seven-Eleven convenience stores in greater Tokyo.
In the first two weeks of May, these stores sold more than 2
million "Gold Onigiri" rice balls, about 20 percent more than
expected, even though they, at 200 yen each, the cost twice as
much as the chain's most basic onigiri, said parent company
Seven & i Holdings.
The optimistic mood is also evident in the way people dress,
according to sales staff at stores in Tokyo's Ginza shopping
district. Women are going for brightly coloured lipstick and
clothes, whereas customers tend to choose drab colours when
times are tougher. Even Japan's typically, dowdy middle-aged men
are buying brighter colours for the summer, sales people say.
"Companies are targeting the 40 percent of the population
that earns 8 million yen or more per year," said Yoshiyuki
Sodekawa, research director at Dentsu Innovation Institute,
which studies market trends for advertising giant Dentsu.
This demographic, which compares with Japan's median
wage-earner income of 4.4 million yen ($43,000), "accounts for
much more than 40 percent of total spending and is leading the
recovery in consumption now."
Critics of "Abenomics" say the premier's policies have
largely ignored low-income "working poor" and that this could
shackle consumer spending.
But, in a sign that more downmarket consumers remain willing
to spend, Fast Retailing Co Ltd said on Tuesday it will
raise prices by around 5 percent at its domestic Uniqlo casual
clothing stores as sales rose for two months after the tax hike.
More broadly, department store sales recovered in May, and
sales of home electronics rebounded to where they were last
year, surveys by Dentsu Innovation Institute show.
For supermarkets, a near real-time measure shows prices
steady after stripping out the tax hike, a sign that spending
there too is firm.
The UTokyo Daily Index, a gauge of prices at 300
supermarkets nationwide compiled by Tokyo University professors,
has fluctuated modestly above and below year-earlier levels for
the past two months and was up 0.15 percent as of Tuesday.
Back in April, the Reuters Breakingviews Abenomics index, a
compendium of Japanese economic data, inched down to 85.97 from
96 in March as consumption wobbled, though wages, lending and
housing starts held up.
Consumer sentiment is quickly recovering from the tax hike,
according to a "lifestyle index" from Hakuhodo Institute of Life
& Living, an arm of Japan's second-biggest ad agency.
The index, measuring the willingness of consumers in Tokyo,
Nagoya and Osaka to spend, fell to 43.7 in April from 53.8 in
March before bouncing to 44.3 in May and 47.2 in June.
"People are saying they want to spend money on services,
like going to the beauty salon or going out to eat," said Akemi
Natsuyama, the institute's R&D director. "They also want to buy
computers, mobile phones and cameras."
Not all consumption measures, however, point upward.
Consider the Tuna-Mackerel Index, a gauge crafted by economist
Kenta Ishizu at Mizuho Securities to act as a leading indicator
of consumer demand.
The idea is that when consumers are feeling flush, they will
pay up for the more expensive "maguro" tuna of sushi fame, and
when they are hard up, they will opt for the lowlier "aji".
Although the economy has gathered strength over the past
year and a half thanks to Abenomics, the index has trended lower
since mid-2013 and recently went into negative territory,
indicating a preference for the cheaper fish.
The problem, Ishizu says, is that inflation is now outpacing
wages, despite a recent round of pay raises and bonuses.
Core consumer prices rose 3.2 percent in April from a year
earlier, the fastest in 23 years and far outstripping a 0.9
percent rise in total cash earnings.
"Consumer spending cannot be an engine of economic growth
unless people expect their wages to rise next year," Ishizu
($1 = 102.4750 yen)
(Additional reporting by Chang-Ran Kim; Editing by Simon