Japan's Service Demand Rises as Spending Recovers (Update6)
Japan's Service Demand Rises as Spending Recovers
June 23 (Bloomberg) -- Japan's services industry expanded for the first month in three in April as wage increases stoked consumer spending in the world's second-largest economy.
The tertiary index, a gauge of demand for services such as retailing, banking and real estate that make up about 60 percent of the economy, rose 1.8 percent from a month earlier, seasonally adjusted, the Ministry of Economy, Trade and Industry said today.
Rising incomes and better job prospects are spurring buying at retailers of Nissan Motor Co. cars and other big-ticket items. Consumer spending, which accounted for half of the 4.9 percent annual pace of growth in the first quarter, will help sustain a recovery from the nation's fourth recession since 1991, said economist Hiromichi Shirakawa.
``We've seen some upward pressure on wages, and companies have started hiring more full timers,'' said Shirakawa, chief economist at UBS Securities Japan Ltd. ``Consumer sentiment will remain firm, and consumption will do fairly well into the summer.''
The median estimate of 31 economists in a Bloomberg Survey was for an increase of 1.5 percent in the index. The yen strengthened to 108.66 to the dollar at 5:33 p.m. in Tokyo from 108.86 late yesterday in New York.
A separate government report today showed that manufacturers became less pessimistic in the second quarter, bolstering expectations that the Bank of Japan's closely watched Tankan survey of business confidence on July 1 will show an improvement.
Japan's unemployment rate fell to 4.4 percent in April, the government statistics bureau said on May 31, the lowest in more than six years.
Minicars
The number of full-time workers rose for a fourth straight month in April after falling for six years, the Ministry of Health, Labor and Welfare said on June 1. Wages rose for a fourth month in six, increasing 0.6 percent.
Wholesale and retail trade, which account for about a quarter of the tertiary index, rose 4.3 percent from March, lifted by sales of cars, today's report showed.
Tokyo-based Nissan, the nation's second-largest automaker, will introduce five new or redesigned vehicles in Japan this year. The company expects this month's release of the Otti minicar to bring more traffic to showrooms and encourage consumers to pick bigger cars the next time they buy.
``We are actually seeing Nissan minicar buyers switching to compact cars, such as the March and Note,'' Kazuhiko Toida, Nissan's senior vice president, said in an interview on June 7. ``We expect more of this to happen.''
From a year earlier, the tertiary index rose 1.8 percent. The all-industry index, which also measures construction and manufacturing, rose 1.7 percent from March and 1.2 percent from a year earlier.
Travel
Medical and health services fell 0.4 percent. Transport and real estate services each rose 1.3 percent, and business at travel agencies expanded 5.8 percent.
Japanese are spending rising incomes to see the world. The number of Japanese passengers traveling overseas from the nation's busiest international airport at Narita rose 9 percent to 6.18 million passengers between January and April this year, according to the airport's Web site.
Hiroshi Kawahata, a director at Eurasia Travel, which specializes in ecology and art tours, says attitudes are changing as consumers choose to spend on services rather than goods.
``We're at the stage now where people will pay for quality of life,'' Kawahata said in an interview on June 8. ``Japanese consumers are becoming more and more sophisticated in their tastes.''
Advertising
Service companies are hiring more as demand rises. Fitness centers in Japan increased staff 9 percent in April, taking on both full and part-time workers, according to data published by the Ministry of Economy, Trade and Industry on June 9. Sales during the month rose 6 percent.
Businesses are also spending more on services including advertising as they compete for customers.
Advertising revenue increased 1.2 percent in April, Japan's Ministry of Economy, Trade and Industry said on June 9. The number of people working in the industry rose 1.9 percent, the second month of increases.
Still, there are concerns spending may fall as the government raises taxes and social security payments to curb growth of the world's largest public debt.
``The increased burden workers will face in the future with higher social welfare and taxes will curb disposable income,'' said Naoki Iizuka, chief economist at Dai-Ichi Life Research Institute in Tokyo.
A government plan to end a tax rebate introduced in 1999 will generate about 3.3 trillion yen ($30.4 billion) in additional tax revenue. Japan last year amended its pension system, reducing payouts annually while increasing workers' obligations to the corporate and national pension plans.
The population will begin to contract next year, while the number of pensioners will rise 40 percent to 34 million by 2018, according to government estimates.
To contact the reporter on this story: Lindsay Whipp in Tokyo at lwhipp1@bloomberg.net
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