Japanese retail sales rose 3.0 percent on year in May, above the consensus call of a 2.0 percent rise, with the pace of increase accelerating from a downwardly revised 2.0 percent gain in April, thanks to continued solid department store sales and a smaller drop in vehicle sales.

Strong inbound spending and high demand for luxury brand goods continued to propel department store sales while higher temperatures propped up sales of seasonal goods. Resumed vehicle production in March after two months of suspension over a safety scandal led to a smaller decline in auto sales.

Retail sales have been above year-earlier levels for a 27th consecutive month, but the pace of increase has slowed from the recent peak of a 7.3 percent rise in February 2023, which is the highest since the 8.3 percent increase in May 2021. High costs for daily necessities are hurting consumer sentiment and real wages have been falling for two years.

On the month, retail sales jumped a seasonally adjusted 1.7 percent on solid department store sales, a rebound in auto sales and higher fuel prices, after rebounding 0.8 percent (revised down from a 1.2 percent gain) in April and falling 1.2 percent in March. It was also stronger than the median forecast of a 0.7 percent increase.

The Ministry of Economy, Trade and Industry upgraded its assessment for the first time in 15 months, saying retail sales are"on a gradual uptrend." In the previous five months, it said sales were"taking one step forward and one step back." The three-month moving average in seasonally adjusted retail sales rose 0.4 percent on the month in May for the fourth straight monthly gain after rising 0.5 percent in April.

Econoday's Relative Performance Index stands at plus 4, just above zero, which indicates the Japanese economy is performing largely as expected. Excluding the impact of inflation, the RPI is plus 12.

Japanese retail sales are forecast to have risen 2.0 percent on the year in May for a 27th straight increase, backed by solid department store sales and a smaller drop in automobiles, following an above-forecast 2.0 percent rise (revised down from an initial 2.4 percent gain) in April, which was led by strong demand for air conditioners amid high temperatures. On the month, retail sales are expected to rise 0.7 percent after a 0.8 percent rebound (revised down from a 1.2 percent rise). The METI regards retail sales as"taking one step forward and one step back."

Retail Sales measure the total receipts at stores that sell durable and nondurable goods. The data are part of the Preliminary Report on the Current Survey of Commerce.

Another way to look at consumer spending in addition to the household spending survey is through the retail sales report. This report gives the total value of goods and services sold each month at retail outlets. The preferred number is the change from the previous year. The report serves as a direct gauge of consumption and consumer confidence. Consumer spending is one of the most important leading indicators for the Japanese economy. Increasing sales signal consumer confidence and economic growth, but higher consumption also leads to inflationary pressures.