Japanese retail sales rose 3.7 percent on year in June, above the consensus call of a 3.0 percent rise, with the pace of increase accelerating from a downwardly revised 2.8 percent gain in May, as the lingering heat wave kept demand for air conditioners and other seasonal goods high while department store sales remained solid. Strong inbound spending and high demand for luxury brand goods continued to drive department store sales higher. Resumed vehicle production in March after two months of suspension over a safety scandal led to smoother deliveries and thus a smaller decline in auto sales.

Retail sales have been above year-earlier levels for the 28th 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 and more than two years of decline in real wages are keeping many households frugal but weekly alternative data shows consumer spending has edged up and consumer sentiment has picked up since late June on hopes of positive effects of an income tax cut that is being processed for the summer.

On the month, retail sales rose a seasonally adjusted 0.6 percent on solid department store sales, strong demand for summer clothing and a second straight monthly rise in auto sales. Those factors more than offset lower sales of fuels and drugs/cosmetics. It was the third consecutive increase following a 1.1 percent gain (revised down from a 1.7 percent jump) in May and a 0.8 percent rebound in April, coming in stronger than the median forecast of a slight 0.1 percent rise.

The METI upgraded its assessment for the second month in a row, saying retail sales are"on an uptrend." Last month it said they were"on a gradual uptrend" in its first upgrade in 15 months. Previously, sales were"taking one step forward and one step back." The three-month moving average in seasonally adjusted retail sales rose 1.0 percent on the month in June for the fifth straight monthly gain after rising 0.4 percent in May.

Econoday's Relative Performance Index stands at plus 24, above zero, which indicates the Japanese economy is performing better than expected. Excluding the impact of inflation, the RPI is plus 53.

Japanese retail sales are forecast to have risen a modest 3.0 percent on the year in June for a 28th straight increase, thanks to the late start to the rainy season that prompted more people to go out, boosting demand for summer items, following an above-forecast 2.8 percent rise (revised down from 3.0 percent) in May, which was led by continued strong demand for air conditioners and a smaller drop in vehicle sales. On the month, retail sales are expected to be nearly flat, up just 0.1 percent, after marking the second straight increase, up a solid 1.1 percent (revised down from a 1.7 percent jump) in May.

Last month, the METI upgraded its assessment for the first time in 15 months, saying retail sales were"on a gradual uptrend." In the previous five months, it said sales were"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.