Japan November Service Demand Rose for Second Month (Update2)

By Toru Fujioka


Jan. 18 (Bloomberg) --

Japan's demand for services unexpectedly climbed for a second month in November, as people spent more on weddings and horse racing.

The tertiary index, a gauge of money households and businesses spend on phone calls, power and transportation, rose 0.1 percent from a month earlier, the Trade Ministry said today in Tokyo. The median estimate of 40 economists surveyed by Bloomberg News was a 0.4 percent drop.

Gains may not be sustained as falling wages and higher oil costs crimp spending by consumers, whose outlays account for more than half of the economy. Some 55 percent of consumers surveyed by the central bank said they plan to pare spending in 2008 because of higher prices, a report this week showed.

``The service sector is losing momentum as Japan's economy slows,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``Domestic demand will weaken as rising oil prices make companies and households more cautious.''

The yen traded at 106.66 against the dollar at 10:59 a.m. in Tokyo, from 106.43 before the report was released.

The increase in service demand was led by one-off factors. Demand for wedding services increased after more days that Japanese tradition holds auspicious fell on weekends or national holidays. People also returned to race tracks in November after meets postponed because of horse flu were held in the month.

``Growth in the service industry has been flat, and this may be reflecting Japan's slowdown,'' said Masato Hisatake, director of economic analysis office at the Trade Ministry.

Five-Year Low

Merchant sentiment fell to a five-year low in December, the government's Economy Watchers index, a survey of barbers, shopkeepers and other people on the frontline of the economy, showed last week.

Japan's core consumer prices, which exclude fresh food, rose at the fastest pace in more than nine years in November. In contrast, wages slipped 0.2 percent, the 10th drop in 11 months.

``Our customers are clearly not in the mood to spend more,'' said Katsuya Okada, a taxi driver in Tokyo. ``It's a very cold winter with sales declining and gasoline prices rising.''

Seven & I Holdings Co., Japan's largest retailer, and J. Front Retailing Co., the country's biggest department-store operator, cut their full-year profit forecasts yesterday on weak clothing sales.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net