Sales increased 1.9% after an upwardly revised gain in April, the economy ministry reported on Monday. The figure exceeded all estimates in a Bloomberg survey of economists. From a year earlier, sales rose 5.3%, compared with the consensus forecast of a 3% gain. The figures are not adjusted for inflation.
The broad advance was led by sales of vehicles, appliances, pharmaceuticals and cosmetics. Sales at department stores also climbed strongly from a year earlier, likely helped by robust tourist spending.
The reading suggests solid consumer demand on the back of a long stretch of wage gains outpacing inflation, despite heightened worries about the lingering impact to prices from the war in Iran. A Cabinet Office survey in May showed more than 90% of households still expected prices to be higher in a year.
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Government subsidies from Prime Minister Sanae Takaichi are also helping to free up cash for households so they can keep spending. Her administration recently compiled an extra budget to continue the programs through the coming months.
Such measures are helping to keep inflation gauges below the Bank of Japan’s 2% target. But officials are worried about underlying price trends. Prices on more than 1,000 food and beverage products rose this month, up from just 84 in May, according to a report by Teikoku Databank.
Even after the US and Iran signed an interim peace deal, the Middle East situation remains fragile, creating a risk for persistent inflationary pressures in Japan. Higher crude oil prices and tighter naphtha supplies have already raised costs for businesses, prompting them to pass those costs onto customers.
Solid consumption remains a key element of the demand-led economic cycle, a condition sought by the BOJ as it continues to raise interest rates toward a more normal setting. Governor Kazuo Ueda last week reiterated his stance to keep hiking rates if the economy, inflation and financial conditions evolve in line with the bank’s outlook.