Japan May retail sales rise faster than expected as COVID curbs ease

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TOKYO (Reuters) – Japanese retail sales rose for a third month in May, reinforcing views that strong consumption will lead an economic rebound this quarter, although rising inflation poses a risk to household spending for the rest of 2022.

Retail sales rose 3.6% in May from a year earlier, government data showed on Wednesday, slightly higher than the median market forecast for a 3.3% gain.

It followed an upwardly revised 3.1% increase in April and marked the third month of advancement since March, when the government lifted all coronavirus restrictions on face-to-face services nationwide.

On a seasonally-adjusted month-on-month basis, retail sales advanced 0.6% in May, after a 1.0% growth in April.

Japanese consumers dined-out and took domestic trips during the “Golden Week” holiday season towards early May, enjoying the break without COVID-19 curbs for the first time since 2019.

The rebound in service consumption and the broader household spending likely boosted the world’s third-largest economy, with analysts in the latest Reuters poll expecting an annualised 4.1% growth in Japan’s gross domestic product this quarter after a 0.5% contraction in January-March.

However, the rising cost of living due to higher commodity prices and the yen’s decline to 24-year-lows have stoked fears Japan’s consumption-led recovery could be undermined throughout the rest of this year.

Consumer inflation has taken centre stage heading into next month’s national upper house election, hitting Prime Minister Fumio Kishida’s approval ratings although his ruling party is still widely expected to claim victory.

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