Consumer Pulse.

Four months in, the framework has done its work. The real wage recovery is now four prints deep and accelerating. The sentiment-execution gap we have traded since April closed in the direction we said it would. What changed in the window from 15 May to 12 June is the resolution of the scissor. The government broke the fiscal blade with a ¥3.11tn emergency energy package, passed in two days, and the household psychology that cracked on the Iran shock repaired itself almost immediately. The monetary blade did not break. It moved to the front of the calendar. The 15–16 June BoJ meeting now carries an 80–96% market-implied probability of a hike to 1.0%, and the rationale on the table is yen defense, not the wage cycle. The constructive view survives the first scenario and is most exposed to the second.

The dominant development of the month is political. On 5 June the Diet passed a ¥3.11tn (≈$19bn) supplementary budget in a 48-hour procedure, reinstating electricity and gas subsidies for July through September. This is the package we flagged as being drafted in last month's note. It passed faster and larger than expected, and the consumer read on it was immediate.

The April confidence collapse we attributed to a fuel-price psychology shock reversed in May the moment the subsidy was announced. The 6.4-point drop that dominated last month's soft data was, as we argued, largely psychological, and it repaired on a policy signal rather than on any change in the underlying price level. The durable goods sub-index recovering to 24.4 is the relevant detail — the same component that froze on the shock is the one that moved first on the relief.

The Economy Watchers Survey confirmed the same turn from the ground. The current conditions DI rebounded to 43.6 in May, up 2.8 points from the 40.8 April trough, moving back toward its long-run average of 45.1. This is the survey dominated by retail and service workers describing what they see at the till, and it moved in lockstep with the confidence index. The "mental recession" of April was exactly that — a one-month reaction to a fuel shock and a subsidy cliff, both of which the government then addressed.

The economic logic of the package is messier than the political logic, and the messiness is deferred rather than removed. The subsidies that were holding headline CPI artificially low are now extended through the summer Upper House cycle, which means the headline path stays capped through Q3 and the eventual unwind is pushed into late 2026. The fiscal blade did not disappear. It was sheathed until after the election.

The structural development underneath the politics is larger. The MHLW April release, published 5 June, printed real cash earnings at +1.9% YoY — an acceleration from the +1.0% March reading and the fourth consecutive positive month, the longest run since 2021. The composition is what matters.

Base scheduled pay rose +3.4% and special bonuses jumped +7.4%. The bonus surge is the direct injection mechanism: it is the Shunto settlement clearing into the summer pay cycle, and it lands as discretionary cash rather than as a slow adjustment to the regular wage bill. Nominal earnings have now grown above 3% for three consecutive months — the first such sequence in 34 years. The market spent May worried that imported inflation would erode the Shunto gains. The April data settled that question in the other direction: the income base is widening faster than the price level, and it is doing so through bonus liquidity that flows straight to spending.

The behavioral confirmation is in the aggregate spend data, which now post-dates both the wage acceleration and the confidence rebound. METI retail sales printed +2.1% YoY and +1.3% MoM in April, beating the +1.3% consensus and accelerating from a revised +1.4% in March. The relevant point is that this is no longer a nominal illusion. With domestic inflation held below 2% by subsidy and nominal income running at +3.5%, the retail gain is now backed by real purchasing power rather than by price pass-through or dissaving. The volume base is widening. The JCB Consumption NOW index corroborates from the transaction side, holding at 106.3 in May with continued strength in dining and e-commerce — the services and Koto-consumption channel that the goods-price narrative kept missing.

The company-level data widened the divergence again in May, and the weather added a second axis to it.

Fast Retailing posted +10.1% domestic SSS in May, the strongest print in the series, on a combination of holiday timing and an extreme heat event. PPIH held +8.1% on a domestic basis, capturing the cost-performance shopper and the non-Chinese inbound demographic on the same footprint. Seven-Eleven Japan came in at +0.8% SSS — nominal growth carried entirely by ticket, with traffic still attriting. The pattern is the one we have tracked since March: the operators with agile inventory or a genuine value proposition take the wage surplus; the operators relying on price pass-through in undifferentiated formats lose footfall regardless of the macro tailwind.

The weather is the second axis and it is unusually violent this cycle. May ranked as the second-hottest month in the global record, the JMA introduced the term "Kokushobi" for days above 40°C, and El Niño is confirmed. The thermal anomaly compressed the seasonal calendar and let agile apparel and drugstores sell summer collections, sun care, and cooling product at full price with no markdown pressure. This is genuine margin, but it carries a front-loading component — a portion of the May strength is pulled-forward demand that will not recur in July, and the SSS prints should not be extrapolated linearly through the summer.

The inbound line broke its record streak. April arrivals printed 3.69 million, down 5.5% YoY — the first annual decline in some time. The decomposition is the whole story: Chinese arrivals collapsed 56.8% on Beijing-directed friction, while Korea grew 21.7% and Taiwan 19.7%, and US arrivals held marginally positive. This is a geographic reallocation of the same demand pool, not an exit from it. The implication is a rotation within inbound rather than out of it — away from the names levered to Chinese duty-free and daigou volume, toward hospitality and rail operators capturing the Korean and Western flows.

The piece that reorganizes everything is the policy cross, and it has simplified since last month. The fiscal side is now resolved in favor of the consumer. The remaining exposure is purely monetary, and it sorts the book cleanly. The names levered to the wage thesis — agile apparel, discount retail, casual dining, drugstores — sell to households whose income is in the payslip and carry almost no direct sensitivity to a BoJ hike. The names exposed to the wealth effect — urban department stores, premium real estate, financed durables, prestige beauty — face the full force of it. The hospitality and inbound names sit in the middle: strong fundamentals, direct exposure to a yen rally if the BoJ moves.