Retail sales in value terms in Japan are beginning to show some signs of life. While total retail sale in Japan declined almost 1% in December from November, spending on (1) fabrics, accessories and apparel, (2) motor vehicles, and (3) household machinery and equipment in December, 2004 were up, respectively 2.9%, 2.6% and 2.5% over November and 4.0%, 0.7% and 1.6% over December, 2003. For the year as a whole motor vehicle spending was up 2.7%, the second year of positive change.It should be noted that the level of purchases of both Fabrics, apparel & accessories and Household machinery and equipment are still almost 20% below levels reached in 2000.

Deflation still plays a role in the decline of retail sales value, but its role is diminishing as can be seen in the first chart, showing the year-to-year changes in the value of retail sales and the year-to-year changes in the Consumer Price Index excluding imputed rent.

Not only have Japanese consumers been spending a bit more freely on selected items, but they are also becoming less pessimistic. While the second chart shows that there has been a slight decline in the year over year change in consumer confidence in recent quarters, the year over year growth remains impressive.