January 18, 2008 / 8:56 AM / 12 years ago

UPDATE 2-Japan consumer sentiment slips as prices edge up

(Adds government’s monthly report, Ota comments)

By Yuzo Saeki

TOKYO, Jan 18 (Reuters) - Japanese consumer confidence fell to a 4-1/2-year low in December as sharp sell-offs in Tokyo stocks and rising energy and grocery prices cut into householders’ pockets.

The data on Friday came on the opening day of a parliament session in which economic ministers acknowledged weakness in the economic recovery but vowed to support growth through reforms.

“Consumers feel their livelihoods are deteriorating as prices are seen rising despite slow improvements in job conditions,” said Azusa Kato, an economist at BNP Paribas.

The Cabinet Office survey’s sentiment index for general households, which includes views on incomes and jobs, was 38.9 in December, the lowest since 36.0 in June 2003.

“General households” are those with two or more people and a reading below 50 suggests consumer pessimism.

A Cabinet Office official said consumers’ worries about prices going up in light of rising costs of raw materials such as oil was the main reason behind the sharp drop in sentiment.

“People have become too used to stable prices during a time when the economy was in bad shape,” the official said. The survey showed that 84.2 percent of respondents expected prices to rise in a year’s time. The percentage was the highest since the question was added to the poll in April 2004.

The government data coincides with a recent series of weak readings in consumer sentiment. A Bank of Japan survey released on Wednesday on how consumers view economic conditions fell to a nearly a five-year low.

Consumers’ already weak view may also take a blow from uncertainties in the global economy.

In a monthly report issued on Friday, the government stuck to its view that the economy is recovering despite some weakness but said a watch needs to be kept on how growing downside risks to U.S. growth could affect the Japanese and global economies.

“Exports and output are firm, so there is no change to our main scenario that Japan’s economy will continue to recover on the back of corporate-sector strength,” Economics Minister Hiroko Ota told a news conference.

“But downside risks to the economy are heightening,” she told reporters after a meeting of cabinet ministers to approve the monthly economic report.


Although an apparent deterioration in consumer confidence may be overblown compared with actual consumption, it will negatively impact private spending, which accounts for more than half of the nation’s overall economy, economists said.

“A slew of reports about price hikes will to some degree prompt consumers to tighten their purse strings,” said Hiroshi Shiraishi, an economist at Lehman Brothers Japan.

“But the decisive factor (for consumption) is job and wage conditions.”

Wage conditions are providing little support to consumer sentiment, however.

Japanese wage earners’ total cash earnings rose 0.1 percent in November from a year earlier, revised government data showed on Friday. The slight rise in November came after a 0.1 percent drop in October.

Many Japanese companies, mindful of the pain of business restructuring over the past decade, have been reluctant to increase wages.

Separate government data showed on Friday that Japan’s tertiary sector index of service industry activity rose just 0.1 percent in November from the previous month.

Ota told parliament’s opening session on Friday that Japan need to boost economic growth to cope with the unprecedented pace of ageing of its population.

She said Japan should be more open to the rest of the global economy, highlighting the need for such steps as increasing direct foreign investments and reforming financial markets.

Finance Minister Fukushiro Nukaga also told parliament the government will continue to work with the Bank of Japan to realise sustainable, private demand-led economic growth under price stability.

“The Japanese economy is on a recovery trend despite some weakness,” he said. (Additional reporting by Leika Kihara and Hideyuki Sano, Editing by Michael Watson)

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