Japan Retail Sales Crumble As G-X Sets Debt-Reduction As The Main ObjectiveOr, Is The G-X Whistling Past The Grave Yard?

Government spending program had been underpinning Japan retail sales until this month when sales fell sharply. The month-to-month drop was the first since December 2009 and the largest since February 2005. It was the smallest Yr/Yr gain since January of this year.

The chart tells the story of a fast drop off in sales. Japan's deflation data have been telling a story of weak consumer demand for some time. With the government incentive programs wearing off we can now begin to see that unaided consumer demand is quite weak in Japan.

Angela Merkel may have won the policy row-or at leas the PR part of it-at the G-X Summit. But the US point that demand is fragile and that it is important to keep growth on line remains the most important near term objective-and the G-X gave it minor standing. Going for budget restraint while the economy is not yet healthy is like trying to get an athlete to perform at Olympic standards right after coming out of intensive care. Foolish though it seems the EMU states have been bullied and cowed by markets in the wake of the revelations of budget-cheating by Greece. Markets have caught countries in a moment of weakness Germany, the country that bank-rolls the Emu-backstop has seized that opportunity to back austerity moves on a tight time schedule, perhaps one that is too tight. While the Summit makes it clear the austerity should not interfere with growth it is clear also that the path the European economies already are on an austerity path. They are assuming growth will be fine instead of assuring that that it will be so. It's a risk.

The summit seems to be a cartoon event of the past. The formality of the G-20 communiqué itself combined with the caveat that nothing is binding serves as a reminder that the clothes do not make the man. The problems of the world economy are still there and the G-X was not able to effectively convince us it would solve them. It is taking steps-some more assured than others-but we cannot be sure of the order of theses steps or of their size. Meanwhile, we see the current needs of an economy like Japan where the new PM wants to tackle its long-entrenched debt problem. Good objective. But is it the right time? Timing is everything.

Japan Retail Sales Trends
	May 10	Apr 10	Mar 10	3mo	6mo	12mo	Yr-Ago	Q-to- Date
Total SA	-2.0%	0.5%	0.8%	-3.1%	3.7%	2.7%	-9.2%	1.4%
Not seasonally adjusted
Total: Nominal	-1.9%	0.5%	0.0%	-5.8%	4.9%	3.0%	-10.9%	0.3%
Motor Vehicles	-5.8%	4.7%	2.0%	2.8%	-0.6%	13.5%	-0.3%	13.5%
Food& Beverage	-1.1%	0.1%	0.8%	-0.3%	3.7%	-0.4%	-0.3%	-2.4%
Fabric apparel& access	0.9%	-4.2%	-0.8%	-15.1%	4.2%	2.9%	-3.2%	-15.6%
Rest of Retail	-1.8%	0.3%	-1.0%	-9.6%	7.2%	2.8%	-20.1%	1.5%