JAPAN has been targeted as the growth sector for property trusts, with all the major players in Japan reporting solid earnings for the year to June 30.

However, it has been not so productive for those with a weighting to the retail sector than, say, the Japanese office market.

Bloomberg reports that Japan's retail sales dropped in July, as a tax increase and a weekend typhoon kept shoppers away from the nation's department stores and car dealerships.

Sales fell 2.2 per cent from a year earlier, the Trade Ministry said in Tokyo. The median estimate of 25 economists surveyed by Bloomberg was for a 0.8 per cent drop.

Stagnant wages and higher taxes, combined with the government's mishandling of pension records, could constrain spending and leave the economy dependent on sustained overseas demand. Consumer spending in the second quarter grew at half the pace of the first quarter.

"I'm not so optimistic about the consumer in the July-September quarter," Takehiro Sato, chief economist at Morgan Stanley Securities Japan, said. "This economy is still export dependent."

Sales of clothing fell 9.7 per cent in July from a year earlier and car sales slumped 4.8 per cent.

Sales of fuel, meanwhile, increased 0.3 per cent as petrol prices surged to a 20-year high.

The figures also showed that consumer sentiment fell to its lowest level since 2004 in July as gas prices rose and the rollback of tax rebates a month earlier added to living costs.

The government's loss of pension records could result in billions of yen in unpaid benefits, the Social Security Agency said in May.

Department store sales had the steepest decline in 30 months and car sales fell for a 25th month in July, according to industry reports.

There was one fewer Saturday in the month compared with a year earlier and a typhoon washed out a three-day weekend.

But Australian property players believe the Japanese market is very fragmented and offers good growth potential in terms of rent and capital values.