Consumer spending accounts for more than half of Japan's economy, and this continued softening poses problems, especially should growth in exports slacken off as we enter 2008. Household sentiment fell to the lowest level in almost four years in November and bonuses grew at less than half of last year's pace. As we can see in the chart below, the year on year rate of services expansion has been clearly slowing since August.
Wholesale sales climbed 2.8 percent month on month in August as raw materials drove prices of unfinished goods higher. Indeed Japanese producer prices rose at the fastest pace in 14 months in November as crude oil surged above $99 a barrel for the first time. We should however not get too excited about this surge in some retail prices, since deflation is still a much more important problem in Japan than inflation is. Indeed, as Bloomberg tells us this morning:
The difference in yield between Japanese and U.S. 10-year bonds climbed this week to the widest in a month on signs inflation is a bigger threat in the U.S. than in Japan.
On the other hand winter bonus payments, which consumers count on to buy big-ticket items such as flat-panel televisions, rose 0.9 percent this year, compared with 2.5 percent in 2006, according to Keidanren, Japan's largest business lobby last week.
Percentages in the last two charts are all for month on month changes.