Finance & Business World

Sentiment among Japanese merchants fell for the first time in three months in April as higher prices of daily necessities sapped consumers' spending power.

The Economy Watchers index, a survey of barbers, taxi drivers and others who deal with consumers, dropped to 35.5 from 36.9 in March, the Cabinet Office said today in Tokyo. The outlook index of conditions in two to three months fell to 36.1.

The cost of everyday goods rose at twice the pace of wages in March, discouraging spending by consumers, whose outlays account for more than half of the economy. Sluggish demand at home, along with slowing exports and factory output, are threatening Japan's longest postwar expansion, economists say.

“Rising prices of daily necessities are reducing consumers' appetite to spend,'' said Satoshi Shinohara, a senior economist at NLI Research Institute in Tokyo. “The chance of Japan falling into a recession will rise if consumer spending declines at a time when exports are slowing.''

Households pared spending at the fastest pace in 15 months in March as prices of frequently purchased goods from milk to eggs rose 3.2 percent, the most in more than three years payday advance lenders. Wages rose 1.2 percent in the month.

Crude oil set records on five straight days last week, indicating that consumers and companies have to keep bearing the burden of higher energy prices. Japan's regular gasoline prices reached a record last week, according to the Oil Information Center.

“Real income is decreasing as consumers are forced to spend more on daily goods even as wage growth remains sluggish,'' said Junko Nishioka, a senior economist at ABN Amro Securities Japan Ltd. in Tokyo.

Japanese companies are likely to increase summer bonuses by the smallest amount since 2002 on concern a stronger yen and the U.S. economic slowdown will cut earnings growth, the Nikkei newspaper reported today.

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