Japan's Retail Sales Drop in December

Japan's retail sales are lower by 1.2% month to month in December. However, their sequential rates of growth show an upswing is nonetheless in place from growth rates over 12-Mo to 6-Mo to 3-Mo. This steady expansion of the pace of growth is belied by the drop in sales over the last two months a drop that is dominated by a sales spurt in October.

Japan's October sales strength also has boosted the fourth quarter's sales pace to a growth rate of 7.5% annualized. Motor vehicle sales are especially strong at a 10% annualized growth rate in Q4.

Despite some slippage in sales consumer confidence continues to move higher, rising to 43.1 in December up from 40.9 in November and above the October level of 42.3.

Over 12-months retail sales are up by just 0.9% with motor vehicle sales up by 5.6%. Consumer confidence is up by an increment of 0.5 in diffusion terms but the diffusion index is still below 50 in value signaling that the long stretch of consumer confidence erosion is still in play in Japan.

Gross domestic product in Japan gained only 0.2 percent on the quarter in the fourth quarter of 2016, the Cabinet Office reported on Monday. That missed expectations for an increase of 0.3 percent, which would have been unchanged from the previous three months. On a yearly basis, GDP gained 1.0 percent, a still weak result and evidence that Japan's monetary stimulus is not yet stirring the pot for growth. Japan appears to still be struggling to gain traction for its economy.

President Trump's over-the-weekend meeting With Japan Prime Minister Abe left the yen weaker as the markets took the two leaders' silence on the currency issue as a tacit endorsement of what had been in play. Japan really has few policy options and its attempts at domestic stimulus using extraordinary expansive monetary policy could be expected to do nothing other than to weaken the yen. Apparently Trump has acquiesced to this reality and the two leaders felt that the best way to deal with it is to try to keep the currency out of the lime-light of a policy discussion. At least that is my interpretation of events. Mr. Trump appears to have finally concluded a successful meeting on a solid high note with another important world leader and U.S. ally, in marked contrast to some of this other interchanges over the previous week.