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Japan’s retail sales unexpectedly fell in November from the previous month for the first drop in five months as pent-up demand started to cool amid rising prices, outweighing a boost from the return of tourists.

Spending slipped 1.1% from October with outlays on clothing falling in a milder-than-usual month, according to the economy and trade ministry. Economists had expected sales to eke out a 0.2% gain. Strengthening inflation has been cited by analysts as a factor that will increasingly weigh on spending in real terms.

Separate figures showed the jobless rate edged down to 2.5% as Japan’s labor market continues to show signs of tightness. The availability of jobs remained unchanged, though, a reading that suggests employment conditions may not be strengthening at a sufficient pace to put the kind of upward pressure on wages sought by the government and central bank.

“Retail sales had been stronger than expected due to the rebound from the summer virus surge and government travel support,” said Yuichi Kodama, chief economist Meiji Yasuda Research Institute. “However, it’s now becoming apparent that rising prices may be gradually weighing on consumer spending.”

Retail receipts were still up 2.6% from a year earlier, but the figures were inflated by the strongest inflation in four decades and they came in well below a 3.7% consensus estimate. Still, a ministry briefer said recovering inbound demand was now back to around 70% of pre-Covid levels.

The jobless figures showed a slight fall in the labor participation rate to 62.4% in November from the previous month, a decline that contributed to the lower unemployment rate. 

What Bloomberg Economics Says...

“Japan’s November employment data point to limited upward pressure on wages...For the Bank of Japan, the data will probably come as a disappointment.”

— Yuki Masujima, economist

For the full report, click here

Job availability remained at 1.35, meaning there were 135 jobs available for every 100 applicants. While that is an indication of a tight labor market, it is still well below pre-pandemic levels.

“Even if employment is tight, because companies can’t see good medium- to long-term growth prospects due to uncertainties in the economy,” Kodama said. “They can’t take steps to boost base salaries, a move that would lead to higher fixed costs,” 

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