Consumption recovery gathering pace in Japan

Retail sales registered 0.7% (MoM sa) in Sep15, a notable rise compared to 0% in the previous month. On the QoQ basis, retail sales growth has reaccelerated to 7.3% (saar) in 3Q, sharply up from 0.8% in 2Q. While spending by foreign tourists may have helped to boost the headline numbers, domestic demand should also be on the mend thanks to the recovery in real wages. Retail sales are the first piece of fresh data released ahead of the Bank of Japan's policy decisions this Friday. 

The positive results should bolster the case that the BOJ will keep the quantitative and qualitative easing program unchanged. More data will be available on Thu-Fri. The job and CPI figures would confirm that the labor market has remained tight and the underlying inflation has continued to inch up, providing a source of comfort for the BOJ. 

But disappointment could come from industrial production, taking into account the weakness in export demand and the pressure of inventory destocking. Thankfully, October's manufacturing PMI (flash) has showed a rebound to 52.5. Should the production forecast index also suggest that the downswing in manufacturing activities is temporary, the BOJ would have enough reasons to stay on hold.