I have written different posts on the Japanese economic situation after the VAT rate hike (see here, here and here). This post is an update after the publication of sales and production figures for August.

1 – Retail sales are still trending downward
On the chart we see that August sales are lower than in July. Compared to the first quarter average, August sales are down by -9.8% (non annualized). During the second quarter retail sales dropped by -9.3% compared to the first quarter. Carryover for the third quarter at the end of August is -0.5% (non annualized)
Consumption is still a drag on economic growth
2 – Households’ purchasing power is decreasing
The Japanese inflation rate was at 3.3% in August while the disposable nominal income was decreasing. This has led to a large drop in purchasing power (-5.4% on a year).
In such a situation who can be surprised by the lower momentum in retail sales?
3 – Industrial output shrinks
With negative domestic demand dynamics and a reduction in exports (real exports are down -0.8% in August on a year) industrial production is on a downward trend. That’s what can be seen on the third graph. During the last three months compared to the three previous, the industrial production is down by -15.6% (annual rate)
Conclusion
No miracles, recession will be the next step for the Japanese economy.  Abenomics are increasingly fragile