Japan: The tertiary activity index fell in May

The tertiary activity index fell 1.5% m/m sa in May, partially offsetting the rise recorded in April (+1.7% m/m). Most components fell in May, with the exception of real estate, learning support, postal services and personal services. In particular, utilities (electricity/gas/heat supply/water) lost 2.3% m/m, while information and communication fell by 1.5% and business services recorded a 2.7% decline.

- The largest negative contributor was wholesale and retail trade (-0.53 pp) due to a 2.2% m/m fall (-3.1% in wholesale trade and -1.0% in the retail sector). However, all these components retreated in reaction to gains in the previous months. Moreover, retail trade is likely to rebound in June according to the Tokyo/Osaka department store sales figures which were very dynamic that month retail. On balance, consumer-oriented industries are likely to remain strong, sustained by high consumer confidence and wages.

- The all-industry index also fell in May (-1.4% m/m) after +1.7% in April, due to the weakness in industrial production (-2.8% m/m) – together with the declining activity in tertiary sector. Conversely, the construction industry index jumped by 1.6%, as the vigour in private non-residential construction offset the weakness in public investment. The latter is disappointing as we expected that the starting of reconstruction programmes could help reviving the sector. Lastly, activity in public services gained 0.2%, after a strong +0.9% in April.

- In year-on-year terms, both the tertiary and all-industry index continued to rise (+1.8% and +1.5% respectively), at a slightly higher pace than in April (+1.7% and +1.2% respectively).

Write: by LuisB