Tags: Japan | economy | spending | output

Japan's Economy Takes Another Hit as Spending, Factory Output Fall

Monday, 29 Sep 2014 08:37 PM

Annual household spending in Japan fell for a fifth straight month in August and factory output unexpectedly declined, highlighting the challenges policymakers face to revive an economy reeling under the strain of a sales tax hike.

The one bright spot came in data showing the jobless rate fell in August, while the availability of jobs stayed at a 22-year high, suggesting that improvements in the job market will ease some of the pain on households.

Household spending fell 4.7 percent in August from a year earlier, data by the internal affairs ministry showed, more than a 3.8 percent drop forecast in a Reuters poll, weighed by an April 1 sales tax hike to 8 percent from 5 percent.

Although the Bank of Japan is in no mood to deploy additional easing anytime soon, a run of soft data is raising doubts about the central bank's conviction that inflation will reach its 2 percent goal by around mid-2015.

To that extent, the BOJ's key tankan corporate survey, due on Wednesday, will be closely scrutinized by central bankers at the rate-setting meeting next week.

The headline index for large manufacturers in the BOJ tankan is viewed as a leading gauge of economic growth, while capital spending plans offer clues on the strength of business activity.

The April tax hike, which drove the economy into its biggest slump since the global financial crisis in the second quarter, is keeping up pressure on the BOJ to ease again eventually.

The government may also be forced to compile a stimulus package if weakness persists, as Prime Minister Shinzo Abe must decide by year-end whether to proceed with a second sales tax hike planned for next year.

Factory output also reflected the struggles faced by companies, which have been saddled with a pile of inventories due to weak demand both at home and abroad.

Trade ministry data showed industrial output fell 1.5 percent in August, as hopes for solid bounce remained elusive after the post-tax hike slump.

The fall compared with economists' median estimate for a 0.2 percent increase in a Reuters poll. It followed a 0.4 percent rise in July and a 3.4 percent drop in June, which was the biggest decline since the March 2011 earthquake.

Manufacturers surveyed by the ministry expect output to rise 6.0 percent in September but decrease 0.2 percent in October.

Despite a flagging economy, the BOJ remains confident that a tighter labor market and improving income conditions will spur private consumption that accounts for about 60 percent of the economy, keeping it on track to meet the 2 percent price goal.

Separate data showed the jobless rate stood at 3.5 percent in August, down from 3.8 percent in July, with the jobs-to-applicants ratio unchanged at a 22-year high of 1.10.

Japan's economy shrank at an annualized 7.1 percent in the second quarter, the deepest slump since the 2009 global financial crisis as April's tax hike took a heavy toll on domestic demand.

Analysts and policymakers expect the economy will rebound in the current quarter, though some warn that the recovery may lack strength and wane later this year if the tax pain drags on.

© 2017 Thomson/Reuters. All rights reserved.

 
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Headline
Annual household spending in Japan fell for a fifth straight month in August and factory output unexpectedly declined, highlighting the challenges policymakers face to revive an economy reeling under the strain of a sales tax hike.
Japan, economy, spending, output
525
2014-37-29
Monday, 29 Sep 2014 08:37 PM
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