Japan consumer confidence index slides further in April

Japan's economy needs deregulation in order to create new jobs, says Richard Jerram of Macquarie Securities

The mood of consumers in Japan deteriorated further in April, a survey has found, as the fallout from the devastating earthquake and tsunami continued to weigh on sentiment.

The consumer confidence index fell to 33.1, down from 38.6 in March, according to the Cabinet Office.

A reading below 50 suggests consumer pessimism.

However, analysts say that there are signs that confidence is beginning to recover.

'Bounce' hopes

Even people in parts of Japan not affected by the 11 March earthquake and tsunami, like Tokyo and western Japan, have been cutting back on spending.

"People refrained from spending money on going to amusement parks or drinking and eating to respect those living in disaster areas," said Masaki Kaano, chief economist at JP Morgan Securities.

However, analysts say consumer confidence was on the rise at the end of April, and could recover next month.

Start Quote

If the government doesn't manage the nuclear power plant issue well and if there is bad news from there, people's sentiment may turn bad”

End Quote Masaki Kaano JP Morgan Securities

"There is no massive downward trend and there are signals of a bounce," said Naomi Fink, Japan strategist at Jefferies in Tokyo.

"We're not going to see several consecutive courses of deterioration."

Spending is likely to rebound, as consumers' concerns are not centred around job security - as they were in the aftermath of the global economic crisis in 2008, said Ms Fink.

Energy squeeze

There are signs that consumer mood was already recovering at the end of April, which coincided with the start of a week-long holiday in Japan called Golden Week.

Another factor lifting spirits has been the end of the Buddhist mourning period.

In Buddhism during the first seven weeks, or 49 days after a death, families and close friends are expected to refrain from entertainment.

The 49th day after the disaster was on 28 April, which means many people were only in the mood to spend after that.

The 9.0 magnitude earthquake and subsequent tsunami killed more than 15,000 people, according to the national policy agency.

"Consumer sentiment changed positively when Golden Week started, and that uptrend remains unchanged into May," said Mr Kaano.

But while analysts are optimistic, there are still some potential risks on the horizon that could affect consumers' likelihood to spend.

Businesses have been asked to cut back on electricity usage by 15% during the summer, when power consumption is at its peak.

Tokyo in the dark Businesses in Tokyo experienced rolling blackouts in the week following the earthquake

Even worse, the nuclear crisis continues to weigh on sentiment.

Work at the Fukushima Daiichi plant was hit with another setback last week after a water leak was found in one of the reactors.

Tokyo Electric Power, the utility that runs the power plant, has said it hopes to stabilise the reactors by January.

Some experts think that a delay in that schedule is now likely.

"If the government doesn't manage the nuclear power plant issue well and if there is bad news from there, people's sentiment may turn bad," said Mr Kaano.

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