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TheStreet Open House

Manufacturing Drop Shows Weakness In Japan Economy

Prices for desktop computers, imported ground meat and canned fish rose, along with electricity and gas rates. The rise in food prices extends across many categories, from jam to chicken powder, bread to salad dressing.

But prices for many other consumer goods, such as DVD players and digital cameras, have continued to fall.

Overall, household spending fell 0.4 percent in June compared with the month before, despite double-digit increases for some items, such as beef, beer and sushi.

Fresh from a victory for his Liberal Democratic Party in upper house parliamentary elections, Abe has acknowledged that despite signs of improvement, many Japanese have yet to feel a boost from his policies. He has vowed to press ahead with deeper and more fundamental economic reforms intended to help restore Japan's competitiveness.

A key factor will be whether companies begin to invest more and raise wages, to help drive a recovery in consumer demand that accounts for most of Japan's economic growth.

While sales are up by double digits at Tokyo's toniest department stores, overall retail sales fell in June from the month before, with surveys showing consumer spending is slowing, Marcel Thieliant, an economist for Capital Economics, said in a report Monday.

Details of the household spending survey showed a near doubling in discretionary purchases, such as wristwatches, men's suits and golf fees. Property purchases have also surged as families buy homes ahead of the anticipated increase in taxes.

But contrary to the government's expectations, many families appear to be replenishing savings rather than splashing out to beat higher prices later.

"Looking ahead, there are a number of reasons to doubt that the recent strong run of consumer spending can continue," Thieliant said. The 70 trillion yen ($716 billion) increase in household wealth due to the stock market rally earlier in the year accounts for only a small part of overall household wealth, he said.

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