Car Demand Boosts Japan Retail Sales

Japanese retail sales posted their biggest gain in 13 years in February, data showed Monday, as the government s incentive programs for fuel-efficient cars and flat-screen television sets continued to underpin consumer activity.

But despite the surge in sales, analysts said consumer sentiment remains fragile as deflation and weak employment conditions continue to cloud the outlook for the nation s economy.

Retail sales rose 4.2% from a year earlier in February, after a 2.3% increase in January, marking the sharpest gain since a 12.4% rise in March 1997, the Ministry of Economy, Trade and Industry said.

The figures suggest government stimulus measures still support personal spending in Japan, analysts said. Japan s economy, which has been recovering on robust export growth, is still vulnerable to fluctuations in overseas demand.

In February, sales of cars gained by 15%, the data showed. There was no impact from massive recalls by Toyota Motor Corp., the government said. Toyota, Japan s biggest auto maker, has recalled nearly nine million vehicles world-wide following a series of complaints and a slew of lawsuits linking vehicle flaws to 52 deaths in the U.S.

Sales of electrical appliances such as flat-screen TV sets increased 8.6%. Sales of gasoline rose 20.7% because of higher crude-oil prices, and sales of spring-season clothing improved 8.4% because of warmer-than-usual weather during the month, the government said.

Sales at large-scale retailers declined 4% from a year earlier, the 23rd straight monthly fall, as consumers reined in purchases of luxury goods because of concerns over wages and job security, the government said. Personal consumption accounts for 60% of Japan s gross domestic product, but analysts said consumer spending will likely remain fragile as entrenched deflation means consumers are likely to delay purchases on expectations of cheaper prices in the future. Japan's core consumer price index declined for the 12th straight month in February.

Deflation is expected to be prolonged, which may prompt consumers to tighten purse strings, said Norio Miyagawa, an economist at Shinko Research Institute.

He added that severe job conditions also weigh on consumer spending. Japan s jobless rate stood at 4.9% in January, a little lower than last July's record high of 5.6%.