April 25, 2014 / 9:17 AM / 4 years ago

Japan's retail sales growth seen at 17-year peak before tax hike

TOKYO (Reuters) - Japan’s retail sales are expected to expand at their fastest pace in 17 years in March ahead of last-minute buying before a sales tax hike in April gets into full swing, a Reuters poll showed.

The poll also found the nation’s industrial output probably rebounded moderately in March from its sharpest fall in eight months in February.

The world’s third-largest economy raised the sales tax to 8 percent from 5 percent on April 1 for the first time since 1997 to curb a ballooning public debt.

Retail sales in March were forecast to rise 11.0 percent from a year earlier, a poll of 20 economists showed, which would be the fastest pace since March 1997 when they jumped 12.4 percent. They rose 3.6 percent in February.

“Amid a sluggish recovery in real wages, retail sales for April-June will tend to show falls after the tax hike,” economists at SMBC Nikko Securities said in the poll.

“But we expect they will recover for July-September as the timing will be combined with the summer bonus season and because a pullback in consumer spending won’t last long.”

The Ministry of Economy, Trade and Industry (METI) is due to announce the retail sales data at 8:50 a.m. on Monday.

The ministry will also publish March industrial production figures on Wednesday, which will probably show a 0.5 percent gain from the previous month, the poll showed, up from a 2.3 percent decline in February.

Analysts say they will focus on manufacturers’ output forecasts for April and May, which will be announced at the same time as the March data, as that will indicate real purchasing power after the tax hike.

In the February data, manufacturers’ surveyed by the government said they expected output to rise 0.9 percent in March but decline 0.6 percent in April.

“Manufacturers’ output forecast for a decline in April may turn out to be not that much as firms’ output is rather restrained in March as they prepared for an expected pullback in consumption after the tax hike,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“So, even if factory output data shows only a small rise in March, it won’t be bad news if April and May output show limited falls.”

Japan’s jobs market data on Friday will likely show that employment condition remained on a steady recovery.

The poll found the nation’s unemployment rate will likely stay at 3.6 percent in March, unchanged from the previous month, the level seen in July 2007. The jobs-to-applicant ratio was expected to show 1.06, also the level seen in July 2007, the poll showed.

Household spending was expected to rise 1.0 percent in March from a year ago after a 2.5 percent drop in February.

Jobs data and household spending will be announced at 8:30 a.m. on May 2.

Analysts project the economy will contract in the current quarter as consumers rein in spending after the tax hike in April, but it will return to moderate growth in the following quarters.

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