Feb 26, 2015 11:56 PM
Japan data signal slow recovery, despite lower energy costs
The Associated Press
TOKYO (AP) 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 long-awaited boost to consumer spending.
The weak retail sales and employment data for the month, 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 percent, compared with 2.5 percent the month before and the lowest in 10 months. Excluding energy costs and food, the consumer price index was at 2.1 percent, level with the previous two months.
The inflation rate is overstated by a 3 percentage point increase in the national sales tax, to 8 percent from 5 percent, last April. The tax hike abruptly took the wind out of the sails of the recovery Prime Minister Shinzo Abe has sought to nurture by massive monetary and fiscal stimulus.
Unemployment rose to 3.6 percent in January from 3.4 percent the month before.
The central bank has been 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. The economy briefly fell back into recession after the sales tax hike but grew at a 2.2 percent annualized rate in October-December.
That mild rebound was helped by a surge in exports, especially of machinery and electronic devices, industries that showed an increase in output in January. Manufacturing output rose 4 percent from the month before, exceeding economists' forecasts, but was 2.6 percent lower than a year earlier.
The stronger-than-expected manufacturing data helped push the benchmark Nikkei 225 stock index to a nearly 15 year high Friday.
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.
Weak consumer demand and corporate investment have dragged on growth and incomes have lagged behind inflation. As the country begins its annual "shunto" spring labor talks, Abe and other officials are pushing companies to raise wages to help support the recovery.
Many corporations with global reach have been racking up record profits thanks to a weak yen, which inflates the value of overseas earnings when they are brought back to Japan. So far, however, any increases in base pay have been meager, 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.
Consumers have so far kept their belts tight, after rushing to make purchases ahead of last year's sales tax hike.
Household spending fell by 0.3 percent in January from the month before and by 5.1 percent from a year earlier, suggesting the recovery in private spending remains sluggish.
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