Why analyst thinks Japan's short-term consumption recovery is still intact

Despite retail sales dipping 0.2%.

According to DBS, the short-term trend of consumption recovery in Japan remains intact. Although retail sales slipped -0.2% (MoM sa) in June, it should be seen as a technical payback from the strong rise of 1.5% in May. 

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Sales of general merchandise (2.2%), apparels & accessories(1.2%) maintained solid growth in June. Consumerspending on durable goodsincluding household machinery (4.9%) and automobiles(1.2%) also picked up.

We expect private consumption growth to remain strong in the nextthree quarterstill 2Q 2014 when the 3ppt VAT hike is implemented as currently scheduled. GDP growth is projected to stay robust at 3% (QoQ saar) in 2Q and 2% in 3Q-4Q before slowing from early-2014.

The longer-term recovery outlook remains uncertain. The confidence effects that have boosted consumption growth in the past half a year can’t last for long. The stock market volatility has increased notably since May due to the lack of new policy initiatives domestically and the fall in risk appetite in global financial markets.