hing 13.924 trillion yen (approximately US$95.37 billion at current exchange rates), an increase of 6.8 per cent on a year ago. For the January-July period, sales totalled 93.177 trillion yen (about US$638 billion), up 6.1 per cent from the same seven months in 2022. That comes on top of 2.6 per cent growth for the whole of 2022, so on the surface of it at least, things are really going okay for the industry in Japan. Inflation is having an impact though. The CPI is holding above 3 per cent (a very high rate historically for Japan) and food prices have been growing relentlessly all year, with the year-on-year food inflation rate hitting 8.8 per cent in July. Retailers are passing on some of the higher costs to consumers. However, there is good news for the latter: inflation at the wholesale level is slowing. July’s annual 3.6 per cent increase was the lowest since March 2021 and the seventh consecutive month of deceleration. This suggests price growth at the CPI level will slow in the second half, meaning that prices in stores will no longer be so juiced by inflation. Sales growth was much more even across retail categories in July. Home-oriented stores experienced an uptick, with specialty stores selling home appliances seeing sales grow by 5.0 per cent year-on-year, and home improvement stores up by 5.2 per cent.   The more than 56,000 convenience stores in Japan also recorded sales growth of 5.2 per cent for July, in line with their 5.1 per cent for the year to date. Drugstores gained 10.2 per cent for July and 8.0 per cent for the year to date. Supermarkets gained 5.2 per cent in July and 3.2 per cent for the seven months.  Meanwhile, the 190 department stores in the METI survey pulled another rabbit out of the hat in July with a 7.6 per cent gain. On a store productivity basis the numbers were slightly more impressive because there were three fewer stores in the mix than last year. For the seven months January-July, sales increased by 9.4 per cent over last year, meaning that they are running at a pace about 50 per cent higher than the retail industry overall. The tourism factor Inbound tourism to Japan is coming back gradually, assisted by a weakening domestic currency and the restoration of flight routes to bring visitors into the country. But we are still not back to where tourism-oriented retailers would want things to be.  In the first half of the year, tourist arrivals were 10.7 million according to the Japan National Tourism Organization. To give some idea where we are in relation to ‘normal’ times, June 2023 arrivals were just over two million, still about 30 per cent down on June 2019. The low numbers coming in from China are really the difference-maker: only 10 per cent of current arrivals are from China compared with 30 per cent pre-Covid. The Chinese are still preferring to travel domestically. Focus on department stores Reports on the pace of business at some of the country’s top department stores are now available through the end of August.  For Takashimaya, sales continued to trend nicely in August, up by 13.1 per cent year-on-year. The Shinjuku store in Tokyo and the Osaka and Kyoto stores all enjoyed sales growth approaching or in excess of 20 per cent. Clothing, personal accessories and restaurants are the leading categories, the last of these boosted by a combination of social normalisation and food inflation. The nine Daimaru and four Matsuzakaya department stores under the J. Front umbrella saw year-on-year sales growth of 18.5 per cent in August, continuing the trend from the first half of the year. The Daimaru Shinsaibashi store, between Osaka and Kobe, the Daimaru Tokyo store and the unit in Umeda (Osaka) all saw sales growth balloon over 30 per cent above the same month a year ago. Isetan Mitsukoshi also saw strong sales growth across its 15 stores in August. Sales were up 17.5 per cent for the whole portfolio but the five Tokyo-area stores raised sales more than 20 per cent above August 2022. The company is reporting that high-value personal accessories and designer clothing are leading categories. Duty free sales are rising as would be expected with the growth of tourism.  Is it all too good to be true? It isn’t too good to be true but it probably isn’t sustainable beyond the end of the year. The numbers don’t lie, but clearly there are some sizable one-off factors that are helping. By the time 2024 rocks up, some of these will ebb and the underlying structural state of things will be exposed. One of the factors, tourism, will continue to be a support for some time, and when the Chinese finally come back in force there will be even more uplift from that source. The currency is another support: the yen continues to weaken and since mid-August has traded at over 145 to the US dollar, which was its lowest level since November last year. The fact that the US and Japanese monetary authorities seem to be moving in opposite directions (the Fed likely to continue tightening and the Bank of Japan not) will not do any favours for the yen and will hopefully attract more overseas visitors to Japan and stimulate more retail spending from them. A third support for sales growth, inflation, will highly likely abate by the end of the year, as mentioned earlier.  For a few more months then, the success story of 2023 still has some fuel in the tank, but after that there will be some serious questions to be answered.