Japan's retail sales rise for 3rd month, but overall trend still soft

Japanese retail sales beat expectations in May as households loosened their purse strings, but underlying trends in consumption remain hostage to COVID-19-linked pressures and suggest the economic recovery will take time to gather steam.

With Tokyo set to host the Olympic Games next month, analysts expect Japan's economy will barely grow in the second quarter after prolonged coronavirus emergency curbs hurt the growth outlook.

As major global economies such as the United States rebound strongly from the COVID-19 slump, the weak growth rate in Japan is pressuring policymakers to take fresh supportive measures on top of the massive existing stimulus to boost demand.

Retail sales jumped 8.2% in May from a year earlier, the third straight month of growth, government data showed on Tuesday, a larger rise than the median market forecast for a 7.9% gain.

Despite the better-than-expected rise in retail sales, the jump was not strong enough to mark a definite shift towards a brighter outlook for spending conditions, said Takeshi Minami, chief economist at Norinchukin Research Institute.

"Many elderly were unlikely to go out and spend money in April and May as there was still a state of emergency or quasi-emergency measures (in major areas)," said Minami.

"It's hard to imagine that the Olympics will set off a spending rush," he said, adding that risks remained that another resurgence in COVID-19 infections would weigh on consumption ahead.

The broader rise in retail sales, which was largely due to statistical base effects that reflected last year's slide, was underpinned by year-on-year gains in spending on items such as general merchandise, clothing, cars and fuel, the data showed.

But compared with the previous month, retail sales lost 0.4% on a seasonally adjusted basis, in a sign the trend for spending by Japanese consumers was losing steam.

Separate data showed the nationwide seasonally adjusted unemployment rate was up at 3.0%, above the previous month's 2.8% and a median forecast of 2.9%.

There were 1.09 jobs per applicant in May, unchanged from April, labour ministry data showed.

The world's third-largest economy is set to expand by an annualised 0.5% in the current quarter after posting a sharp 3.9% annualised drop in January-March, according to the latest Reuters poll data.