Japan unlikely to hold increase in retail sales

Bloomberg News Service

Japanese retail sales rose in November as department stores offered discounts and promotions to lure customers.

Sales gained 1.5 percent from October, seasonally adjusted, according to the Ministry of Economy, Trade and Industry. They fell 2. 7 percent from a year earlier, less than the 4 percent decline that economists had expected.

The gains, which follow a 2 percent decline the month before, may be short-lived. Companies from Oji Paper Co. to Mitsubishi Heavy Industries Ltd. are cutting jobs and salaries, pushing unemployment to a postwar high and scaring consumers away from big purchases.

"As the wage environment gets worse, demand will continue to deteriorate," said Yasukazu Shimizu, an economist at Aozora Bank Ltd. "The overall trend is still down."

Oji Paper, Japan's second-biggest paper maker, will cut 5,100 workers by 2006 to boost profits as a drop in mobile phone and computer sales cuts into the need for thick manuals and cardboard shipping boxes. A 5 percent wage cut for management goes into effect next month.

The job cuts are dulling spending. Consumer spending, which makes up about 55 percent of the economy, fell 1.7 percent in the third quarter, helping to shrink the economy by 0.5 percent. Spending probably fell again this quarter, economists said.

Sales at supermarkets and department stores, which make up about 15 percent of total spending, rose 5.7 percent from October. Department store sales rose 5.2 percent and supermarket sales rose 5.0 percent. Sales at stores open a year or more fell 0.7 percent from a year earlier.

Japan's two-year bout with deflation is hurting sales at some larger stores.

Daiei Inc. and Aeon Co., the second- and third-largest retailers, failed to draw enough customers in November to offset a 10 percent decline in prices from a year earlier. Sales at Aeon stores open a year or more fell 2.4 percent from a year earlier, while Daiei sales fell 8.6 percent.

Meanwhile, sales at No. 1 department store Takashimaya Co. rose 4 percent in November from a year earlier as stores offered discounts on early purchases of year-end gifts, including New Year's cuisine.

Meanwhile, Japan's industrial production fell in November, led by cars and electronic toys, as declining exports and consumer spending forced manufacturers to slow assembly lines.

Production fell 1.8 percent last month from October, seasonally adjusted, according to the Ministry of Economy, Trade and Industry. Economists had expected a 1 percent decline.