Japan retail sales rise in February, suggest growing consumer confidence

By Stanley White

TOKYO (Reuters) - Japan's retail sales rose in February as shoppers spent more on food, drinks and clothes, suggesting rising wages and a tight labour market are supporting consumer confidence.

The 1.6 percent annual increase in retail sales in February was slightly less than the median estimate for a 1.7 percent annual increase and follows a revised 1.5 percent annual increase in January.

Rising consumer spending makes it more likely that consumer prices will rise in the future, which could help the Bank of Japan reach its elusive 2 percent inflation target, although its ultra-easy monetary policy will still be in place for some time.

"Consumer spending looks like it is at the beginning of a mild recovery," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

"The labour market is improving, which is supportive. There is a dip in durable goods spending, but spending on other items is gaining some momentum."

Spending on food and drinks rose 2.3 percent in February from a year ago, data from the trade ministry showed on Thursday, picking up from January's 2.0 percent annual increase.

Spending on clothes rose an annual 0.3 percent in February, rebounding slightly from a 0.5 percent annual decline in January.

On the negative side, spending on cars fell an annual 2.1 percent in February, deepening a 0.3 percent annual decline in January.

Spending on electronics, which includes durable goods such as washing machines and refrigerators, rose 4.6 percent year-on-year in February, slower than a 5.2 percent year-on-year increase in January.

Big Japanese companies agreed earlier this month at annual negotiations with labour unions to raise wages for a fifth year.This wage hike could help consumer spending to boost Japan's stubbornly slow inflation, but many companies likely fell short of Prime Minister Shinzo Abe's goal of increasing wages by 3 percent or more.

Japan's jobs-to-applicants ratio, a measure of labour demand, is forecast to have risen to the highest in four decades in February. The data is due on Friday.

The nationwide core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 1.0 percent in February from a year earlier, matching the median estimate, data last week showed.

However, a narrower measure of consumer prices that excludes fresh food and energy rose an annual 0.5 percent in February, highlighting the snail's pace of underlying inflation.

(Reporting by Stanley White; Editing by Eric Meijer)