TOKYO (MNI) – Japanese consumer sentiment has worsened slightly in
the past three months in the wake of the strong yen and slumping share
prices, posting the first drop since March 2009, according to the
results of the Bank of Japan’s quarterly survey released on Friday.

The consumer economic sentiment diffusion index was nearly flat,
falling to -42.1 in September from -41.2 in June, but it was still above
-62.0 in March 2010 and the record low of -88.9 hit in March 2009.

The BOJ survey does not provide reasons for changes in sentiment.

The drop in sentiment is consistent with the results of the latest
government survey.

Japan’s Consumer Confidence Survey index slumped to 42.4 in August
from 43.3 in July, posting the second consecutive month-on-month drop,
as fewer people were certain about their overall economic well-being and
job security for the coming months.

The Cabinet Office downgraded its assessment from the previous
month for the first time since December 2009, saying: “Consumer
confidence is marking time after showing moves for an improvement.”

The BOJ and government polls suggest that the pace of Japan’s
economic recovery is set to slow or pause in the coming months after
hitting bottom in the first quarter of 2009.

As for the BOJ survey, the headline diffusion index subtracts the
number of consumers who say economic conditions are worse than they were
a year ago from those who say they have improved.

The BOJ has said the employment and income situation has remained
severe but that the degree of severity has eased somewhat.

The percentage of respondents who said that their household income
had fallen from a year earlier stood at 50.6%, down from 51.1% in the
previous survey.

The survey also showed that 37.7% of those polled said that their
income is likely to fall in the coming year, up from 35.1% in the June
survey.

The quarterly survey showed that concern about an economic recovery
among consumers has somewhat increased, possibly due to the waning
effects of the government’s economic stimulus measures that have
supported durable goods purchases.

Concern over the strong yen, which hurts exporter profits, and
increased uncertainty over the global economy are also believed to be
behind the dip in sentiment.

On the level of interest rates on savings and loans, 50.6% of the
surveyed said it is too low, down from 51.4% in June. It compared with
43.7% in March 2009, the lowest level since the BOJ began compiling the
data in September 2006.

The BOJ has maintained the target for the overnight lending rate
among commercial banks practically zero, at 0.1%, since lowering it from
0.3% in December 2008 in order to support a self-sustained recovery and
ease deflationary pressure on prices.

A series of liquidity injection programs conducted by the central
bank over nearly two years has also helped keep longer-term rates low.

The BOJ doesn’t ask the respondents whether they are talking about
borrowing costs or returns on savings and investments.

The number of consumers who expect Japanese consumer prices to rise
in the next year fell to 42.7% in September from 44.2% in June.

The survey showed that 12.4% said prices will fall for the next
year, up from 9.4% three months ago.

Japan’s core consumer prices fell 1.0% in August from a year
earlier, the 18th straight y/y drop, as retail discounts and subsidies
for high school education continued to offset higher energy costs, the
Ministry of Internal Affairs and Communications said Friday.

The pace of decline in the core CPI — excluding fresh food but
including energy — decelerated slightly from -1.1% in July and matched
June’s -1.0% because the year-on-year rise in energy prices expanded to
+4.3% in August from +3.7% in July, raising the sector’s positive
contribution to the CPI.

Looking five years ahead in the BOJ survey, 10.3% of the
respondents said prices will fall further, up from 9.4% in the previous
survey, suggesting that the public’s medium-term inflation expectations
that the BOJ is closely watching may be drifting downward.

The BOJ survey, conducted between Aug. 11 and Sept. 6, polled 4,000
people aged 20 years or older, with 2,222, or 55.6%, valid responses
received.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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