Japanese Consumer Confidence Improves But Is Still Historically Low

The Japanese consumer is becoming a little less pessimistic. The Economic and Social Research Institute's (ESRI) diffusion index for Consumer Confidence reached a low point of 26.7 in December 2008. The index rose steadily through October, 2009. After declining in November and December the index has risen in each of the past three months and is now at 41.0 in March, as can be seen in the first chart. Although it has risen 3.1 points since December, the Index for March shows that more than half of Japanese consumers continue to be pessimistic..The ESRI' index does not have a long history, only beginning in April, 2004. Some of the indicators of confidence, however, have a much longer history. One such is the percentage change in same store sales of department stores that was released today. This series goes back to January, 1965 and is shown in the second chart. The correlation between consumer confidence and the year to year percent change in department store sales for the period 2004 to date is .63 as can be seem in the third chart. The R² is .39, that is the variation in department sales accounts for 39% of the variation in confidence. Although far from perfect, the department store sales history suggests that the level of Japanese consumer confidence continues at historical lows.