Tokyo: Japanese factories churned out more machinery and electronic devices in January as export shipments rose, but lower energy costs due to cheaper crude oil failed to provide a boost to consumer spending.
Weak retail sales and a cooling of already slow inflation underscored the fragility of the recovery of the world’s third-largest economy. It also raised the potential for further monetary stimulus from the central bank.
Core inflation, excluding volatile food prices, was 2.2 per cent, compared with 2.5 per cent the month before and the lowest in 10 months. Excluding energy costs and food, the consumer price index rose 2.1 per cent, level with the previous two months.
The inflation rate is overstated by a 3 percentage point increase in the national sales tax, to 8 per cent from 5 per cent, last April. The tax hike snatched the wind from the sails of the recovery Prime Minister Shinzo Abe has sought to nurture by massive monetary and fiscal stimulus.
Excluding the effect from the sales tax, the inflation rate was only 0.2 per cent, Bank of Japan Gov. Haruhiko Kuroda said in a speech Friday.
The central bank is pumping trillions of yen (tens of billions of dollars) a month into the economy, seeking to vanquish deflation that discouraged investment and spending over the past two decades, aiming at an inflation rate of 2 per cent.
Kuroda, the central bank governor, likened the 2 per cent target to the velocity needed for a spaceship to escape the earth’s gravitational pull.
“Reaching orbit at an altitude of 1 per cent ... is not enough,” he said. “This is because satellites at low altitude can be pulled back by gravity.”
But he said the central bank would not adjust its policy based just on crude oil prices, which fell about 60 per cent between December and January but have since recovered slightly.
The economy briefly fell back into recession after the sales tax hike but grew at a 2.2 per cent annualised rate in October-December, helped by a surge in exports of machinery and electronics components, whose output rose in January.
Manufacturing output rose 4 per cent from the month before, exceeding economists’ forecasts, but was 2.6 per cent lower than a year earlier.
Unemployment rose to 3.6 per cent in January from 3.4 per cent the month before.
Sustained growth in industrial production will depend on both export and domestic demand, said Harumi Taguchi, an economist with HIS.
“Production growth has remained lower that industry’s outlooks due to weaker-than-expected demand and inventory levels are still high relative to longer-term trends,” she wrote in a commentary.
Incomes have lagged behind inflation, sapping consumer demand and in turn corporate investment. Household spending fell by 0.3 per cent in January from the month before and by 5.1 per cent from a year earlier, suggesting the recovery in private spending remains sluggish.
As Japan begins annual “shunto” spring labour talks, Abe and other officials are pushing companies to raise wages to help support the recovery.
Many Japanese corporations have racked up record profits thanks to a weak yen, which inflates the value of overseas earnings when they are brought back to Japan. But based pay increases have been meagre, and mostly confined to big companies, which employ a minority of Japanese workers.
The small and medium-sized companies that employ nearly three-quarters of all Japanese workers have been squeezed by rising costs and are less able to afford paying higher wages.
