Ja­pan in­fla­tion ebbs in May, level of un­em­ploy­ment re­mains flat at 3.3%


The state of Ja­pan’s eco­nomic re­cov­ery re­mains murky, with in­fla­tion still nearly flat in May de­spite un­prece­dented mon­e­tary stim­u­lus, though job­less­ness was flat at 3.3 per­cent and house­hold spend­ing rose for the first time in over a year.

The data re­leased Fri­day fol­lowed rel­a­tively weak in­di­ca­tors re­cently that have showed soft­en­ing de­mand and slow­ing in­dus­trial pro­duc­tion. Econ­o­mists say the world’s third- largest econ­omy slowed or pos­si­bly con­tracted in the April-June quar­ter.

Ja­pan’s cen­tral bank is pump­ing un­prece­dented sums of cash into the econ­omy, seek­ing to push prices higher and spur in­fla­tion. The ul­tra-easy mon­e­tary pol­icy is the main weapon in Prime Min­is­ter Shinzo Abe’s eco­nomic pro­gram, dubbed Abe­nomics, and is meant to con­vince com­pa­nies and fam­i­lies to step up spend­ing to avoid hav­ing to pay more as prices rise.

How­ever, lower energy costs due to the fall in oil prices over the past year are slow­ing progress to­ward the Bank of Ja­pan’s 2 per­cent in­fla­tion goal. Of­fi­cials say they ex­pect prices to be­gin ris­ing once lag­ging declines in gas prices sta­bi­lize in com­ing months.

But the trend to­ward lower energy prices is help­ing busi­nesses and con­sumers, who in­creased spend­ing by 4.8 per­cent in May, the first such jump since March 2014. Elec­tric­ity rates, which are linked to trends in oil prices, are due to fall 3 per­cent in July.

An April 2014 jump in the sales tax to 8 per­cent from 5 per­cent pushed the econ­omy into re­ces­sion as pur­chases that had been moved for­ward to beat the tax hike fell off.

House­hold spend­ing is only one in­di­ca­tor and is no­to­ri­ously volatile, Masamichi Adachi of JP Mor­gan said in a com­men­tary. Since semi-an­nual bonuses are paid in June, spend­ing will likely rise dur­ing the sum­mer, he said.

But the re­cov­ery in con­fi­dence is still weaker than ex­pected, and he has cut his forecast for sec­ond quar­ter growth to zero per­cent from 1.5 per­cent, he said.

Over­all, Ja­pan has yet to van­quish the de­fla­tion­ary pres­sures that have dis­cour­aged many com­pa­nies from mak­ing long-term in­vest­ments and hir­ing, said Mar­cel Thieliant of Cap­i­tal Eco­nom­ics.

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