Japan's retail sales climbed 2.7% in September MoM sa

Recouping losses incurred during sales tax hike.

Japan's industrial production rebounded to 2.7% (MoM sa) in September, up from -1.9% in Aug and slightly higher than the consensus estimate of 2.2%.

According to a research note from DBS, meanwhile, retail sales also posted positive results, gaining 2.7% in September.

The report noted that the retail sales index has so far returned to the February levels, fully recouping the losses incurred during the sales tax hike.

The improvement in output and consumption data should allow the Bank of Japan (BOJ) to argue that the economy is on the recovery path and the impact of sales tax hike is waning.

Here's more from DBS:

The case is strengthening that the BOJ will maintain status quo on monetary policy and maintain a constructive view on the economy at Friday’s meeting.
Still, chances are high that the BOJ will revise down its full year GDP growth forecasts at this meeting. Notwithstanding the rebound in Sep, industrial output still contracted 7.7% (QoQ saar) in 3Q.

The third quarter GDP would still miss the official forecast by a wide margin. We caution against reading too much into a single month’s data.

The recovery in industrial production is nascent as it came after a prolonged downturn in the past two quarters.

Production level will be flat in Oct according to the official forecast index. Meanwhile, the rise in retail sales may not be entirely contributed by domestic spending, given that the number of foreign tourist arrivals has surged on the back of a weaker JPY.

In addition, retail sales data can’t capture the state of services spending. The private consumption index, which measures overall consumer spending on goods and services, has significantly underperformed retail sales in Aug.

Whether the gap can be closed in Sep will remain to be seen.