Abenomics hit by weak data
Prices, spending still decreasing in Japan
TOKYO: Japan yesterday published a string of mostly weak data, the first major figures since news that the world’s No.3 economy had slipped back into recession.
A key inflation gauge showed prices fell in October from a year ago, while spending by households also dropped in a double blow for Prime Minister Shinzo Abe’s highprofile growth blitz, dubbed Abenomics.
The weak figures came despite signs of a tight labour market, with the headline unemployment rate at a two-decade low of 3.1%, down from 3.4% in September.
But even the jobless numbers highlight a growing red flag for the economy — the rise of part-time work at lower wages.
“Employment is rising but those jobs are mostly part time,” said Dai-ichi Life Research Institute’s chief economist Yoshiki Shinke. “The supply/demand balance for stable, permanent positions is not firm. As a result, we are seeing more employment in low-wage jobs.”
Earlier this month, official figures showed that Japan’s gross domestic product shrank 0.2% in the July-September period, marking the second straight quarterly decline.
The economy dipped into a brief recession last year after consumers tightened their belts following an increase in Japan’s consumption tax, which dealt a blow to signs that Mr Abe’s bid to spur the oncestellar economy was working.
That downturn spurred the Bank of Japan (BoJ) to sharply increase its already massive bond-buying programme — a cornerstone of Abenomics — effectively printing money to boost lending.
While Tokyo’s efforts sharply weakened the yen, beefed up firms’ profits and stoked a stock market rally, its impact on an economy beset by years of deflation has been less convincing.
Daiwa Institute of Research economist Satoshi Osanai said Japan’s economy was “out of gear”, with most of Abenomics’ benefits limited to the country’s boardrooms.
“That’s why consumption is still weak, even though employment got better,” he said. “Any economic improvement remains at the corporate level and has not spread to other areas, such as the household sector.”
The figures yesterday showed that core inflation, which excludes volatile fresh food prices, fell 0.1% in October, marking the third consecutive monthly decline.
Falling petrol prices were the key culprit in pulling the index down, the internal affairs ministry said.
Meanwhile, household spending for the month fell 2.4%, underscoring consumer caution.
The latest figures will turn attention back to the BoJ ahead of its policy meeting next month to see whether it adds to its ¥80-trillion (US$653 billion) annual stimulus programme.
Last week, the central bank held fire on expanding the scheme despite news of another recession and evidence of weak exports.
However, the BoJ has been forced to cut its growth outlook and push back the timeline for a key inflation target as earlier, more optimistic predictions failed to come true.
The price target is a key part of Japan’s bid to exit years of deflation. Falling or stagnant prices may sound good for consumers but they tend to act as an incentive to put off spending in the hope of paying less for goods down the road. That, in turn, tends to hurts companies’ expansion and hiring plans, denting the wider economy.
Mr Abe has staked his reputation on a mix of fiscal spending, aggressive monetary policy easing and structural reforms, but overhauling the highly regulated economy has been slower than many had hoped.
Japan’s economy, once Asia’s biggest, has been overtaken by rival China while it struggles with a challenging demographic outlook that is expected to see its population shrink by tens of millions in coming decades.
Mr Abe yesterday ordered the compilation of an extra budget for the current fiscal year, in a bid to spur growth in an economy that has contracted in the past two quarters.
The budget, which adviser Etsuro Honda has said should be as much as ¥3.5 trillion, will provide financial aid to lowincome pensioners. About 10 million of the nation’s 40 million pension recipients would each receive about ¥30,000 under the plan.
“The labour market is quite tight, so the situation is improving for households with working people,” said Masamichi Adachi, an economist at JPMorgan Chase. “It’s the pensioners who are suffering as the food prices are going up on the back of the yen’s depreciation.”
The budget also will focus on measures to implement an Asia-Pacific trade pact, disaster preparation and the government’s new plan to stabilise the population at 100 million.
Mr Abe this week outlined measures for his “Abenomics 2.0” platform in a bid to reach targets such as a ¥600-trillion economy by 2020 and an increase of the birth rate to 1.8 from 1.4 children per woman now. He also pledged that his government would aim for a 3% rise in the minimum wage.