More gloomy data casts doubt on Japan recovery
Published on: Wednesday, October 01, 2014
TOKYO: Japan's factory output saw a surprise drop and household spending kept falling in August, data showed Tuesday, fanning fears about the impact of April's sales tax rise on the economy.The figures will add to worries that the country's tentative recovery has been knocked off kilter by the increased levy and strengthen the hand of those arguing against another hike next year.Industrial production shrank 1.5 per cent month-on-month in August after rising 0.4 per cent in July, the ministry of economy, trade and industry said.ADVERTISEMENT The latest reading also missed a market median forecast of a 0.3 per cent rise.Separate data from the internal affairs ministry showed household spending in August fell a steeper-than-expected 4.7 per cent from a year earlier.Spending has now fallen for five straight months since the government raised the sales tax from 5.0 per cent to 8.0 per cent.The latest fall was sharper than the market forecast of a 3.6 per cent drop and came after a 5.9 per cent plunge in July.ADVERTISEMENT Yet more weak data is likely to force policymakers to take a hard look at the state of the economy.The government and central bank leaders have argued the world's third largest economy remains broadly on a recovery path and has withstood a temporary shock from the tax rise.
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But that position is getting harder to defend, say observers."There is no sign at all of a V-shaped economic recovery previously forecast by the government," said Norinchukin Research Institute chief economist Takeshi Minami.Demand for durable goods remains weak, compounded by a buying spree ahead of the tax hike, and "as far as demand for services and non-durable items is concerned, people are keeping a tight grip on their wallets because of a continued decline in real wages", he told Dow Jones Newswires.Marcel Thieliant, economist at Capital Economics, said in a note that Tuesday's data "are unlikely to dispel concerns about the pace of recovery from last quarter's slump".A rebound in industrial production in September is likely but manufacturing companies predict yet another month-on-month decline of 0.2 per cent in October, he noted, citing a survey by the industry ministry.The one ray of light for the government is that unemployment remains low, with the jobless rate falling to 3.5 per cent in August from 3.8 per cent in July.But Thieliant warned "the weakness in output since the beginning of the year will take its toll on the job market in coming months"."Accordingly, we expect the unemployment rate to climb to 4.0 per cent by the end of the year," he said.Investors are now waiting for the Bank of Japan's release Wednesday of its quarterly Tankan business sentiment survey.Retail sales had surged ahead of the April 1 sales tax rise—Japan's first in 17 years—as shoppers made a last-minute dash to buy staples such as rice and toilet rolls, as well as big-ticket items such as cars and refrigerators.But spending turned down right after the levy hike, weighing on activity and exacerbating worries that the higher tax would crimp consumer spending and hamper a wider economic recovery. The tax rise was seen as crucial for shrinking Japan's mammoth national debt, proportionately the worst among wealthy nations.Policymakers are expected to decide by the end of the year on whether to go ahead with earlier plans to raise sales taxes again next year.Households could further tighten their belts, said SMBC Nikko Securities in a note to clients, aware that despite a bump in bonuses, companies were holding back on any increase in regular pay, but it will make little difference to the calculation on another tax rise.Stay up-to-date by following Daily Express’s Telegram channel.
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"Even though consumption and the overall economic recovery have been weak... the government is likely to go ahead with the consumption tax hike from October 2015," it said.Economists generally agree on the need for a rise as a way of getting a handle on Japan's rocketing public debt, but they also expect the economy to struggle in the near future. –AFP