Jan. 23 (Bloomberg) -- Japanese demand for services fell more than expected in November, led by telecommunications and retailing, sapping a recovery in the world's second-largest economy that has been fueled by exports. The tertiary index fell 2.3 percent from October, seasonally adjusted, the Ministry of Economy, Trade and Industry said in Tokyo. The decline was the first in four months. From a year earlier, the index rose 0.6 percent. A decline in consumer demand has cut sales at retailer Seiyu Ltd. and other service companies, which make up three-fifths of the world's No. 2 economy. Exports and capital spending by manufacturers including Canon Inc. and Sharp Corp. accounted for all of Japan's third-quarter economic growth. ``Compared with manufacturing, the recovery for personal consumption is much slower,'' said Norio Miyagawa, an economist at Shinko Research Institute in Tokyo. ``The wage and employment environment remain severe, so we're not seeing a strong recovery in spending.''
The yen weakened to 106.20 to the dollar at 3:49 p.m. in Tokyo from 106.03 late yesterday in New York. The benchmark 1.4 percent bond due in December 2013 fell, pushing its yield up 2.5 basis points to 1.330 percent as of 3:50 p.m. in Tokyo, according to Japan Bond Trading Co. A basis point is 0.01 percentage point. The tertiary index had been forecast to drop a median 1 percent, according to a Bloomberg News survey of 33 economists. The index rose 1.1 percent in October. Today's report showed that demand for utilities rose, while wholesale and retail sales, real estate, transport, and finance and insurance declined.
Deflation
The broader all-industry index fell 1.3 percent in November from October. The 31 economists surveyed by Bloomberg News expected the index to fall 0.4 percent. From a year earlier, the all-industry index rose 0.4 percent. The all-industry index is used as a proxy for gross domestic product because it adds industrial production, construction, agriculture and government spending to the tertiary index. Five years of deflation have hurt retailers and other companies that rely on domestic sales. Core consumer prices, which exclude fresh food, have only risen for one month since April 1998. Falling wages have eaten into consumer purchasing power, forcing retailers to cut prices to spur demand. ``Prices have declined in the household goods industry in the past few years, signaling that deflation hasn't stopped,'' said Tadashi Kakimoto, a spokesman for Kao Corp., Japan's biggest maker of household goods. ``While the situation of consumer spending has remained severe, we've managed to keep sales up with the introduction of new products.''
Household Spending
Personal consumption, which accounts for more than half of Japan's economy, has slowed to half the pace of the preceding five years. Spending by households headed by a salaried worker fell 0.2 percent in November, the fourth drop in five months, and unemployment was unchanged at 5.2 percent, near the record high of 5.5 percent. Seiyu, Japan's fourth-largest retailer, said its sales fell 3 percent in November, led by clothing and food. Department store sales in Tokyo, home of one in 10 Japanese, fell 7.2 percent in November from the same month a year ago, marking two years of declines, the Japan Department Stores Association said last month. The Bank of Japan this week unexpectedly decided to pump more cash into the economy to fight deflation and slow the yen's 12 percent gain against the dollar in the past year, which threatens to derail the recovery by making Japanese goods more expensive abroad and cutting the profits of exporters. The bank's policy board decided to raise the upper limit of its target for reserves available to lenders to 35 trillion yen ($326 billion) from 32 trillion yen, the first increase since October. The bank kept monthly purchases of government bonds from lenders unchanged at 1.2 trillion yen. //www.bloomberg.com