Ja­pan sig­nals solid re­cov­ery

In­dus­trial out­put rises more than ex­pected and de­mand for labour re­mains at its strong­est in over 40 years

The Gulf Today - Business - - 6viewpoint -

TOKYO: Ja­pan’s in­dus­trial out­put rose more than ex­pected in Au­gust and de­mand for labour re­mained at its strong­est in over 40 years in a fur­ther sign of solid mo­men­tum in the world’s third­largest econ­omy.

The flurry of data should bol­ster op­ti­mism about the out­look for growth, though Prime Min­is­ter Shinzo Abe’s de­ci­sion to call a snap elec­tion has raised some un­cer­tainty over eco­nomic pol­icy.

There was also some un­easi­ness about mone­tary pol­icy af­ter a sum­mary of the Bank of Ja­pan’s most re­cent meet­ing showed one board mem­ber wanted an ex­pan­sion of stim­u­lus as con­sumer prices re­main dis­tant from the cen­tral bank’s 2 per cent in­fla­tion tar­get.

Na­tion­wide core con­sumer price in­dex (CPI), which in­cludes oil prod­ucts but ex­cludes volatile fresh food prices, rose 0.7 per cent, match­ing a me­dian mar­ket fore­cast. It was the eighth straight month of gains in the in­dex, and fol­lowed a 0.5 per cent rise in July.

“Prices are ris­ing grad­u­ally. Ex­ports are sup­port­ing out­put and do­mes­tic de­mand doesn’t look too bad,” said Hi­de­nobu Tokuda, se­nior econ­o­mist at Mizuho Re­search In­sti­tute.

“As long as Abe re­mains in power, we will see a con­tin­u­a­tion of his poli­cies, but it all de­pends on the elec­tion.”

In­deed, de­mand for labour re­mains at the strong­est level since 1974 with data show­ing the jobs-ap­pli­cants ra­tio held steady at 1.52 in Au­gust.

In­dus­trial out­put also rose a larger-than-ex­pected 2.1 per cent in Au­gust from the pre­vi­ous month as man­u­fac­tur­ers of con­struc­tion equip­ment, au­tos, and elec­tronic parts pro­duced more goods.

Man­u­fac­tur­ers sur­veyed by the gov­ern­ment ex­pect out­put to fall 1.9 per cent in Septem­ber and then ex­pand by 3.5 per cent in Oc­to­ber.

Pol­i­tics, how­ever, added a layer of un­cer­tainty over the out­look for growth, with in­fla­tion still well be­hind the BOJ’S tar­get.

Abe on Thurs­day dis­solved the lower house and called a snap elec­tion for Oct. 22. Ini­tially, his rul­ing coali­tion looked cer­tain to re­tain its ma­jor­ity. How­ever, the out­come has been thrown into doubt be­cause the largest op­po­si­tion party has aban­doned the elec­tion and will al­low its mem­bers to run for a newly formed party that may be more pop­u­lar with vot­ers.

The sum­mary of the BOJ’S rate re­view this month did not iden­tify who spoke or what spe­cific mea­sures were pro­posed. How­ever, the cen­tral bank’s an­nounce­ment af­ter its Sept. 20-21 meet­ing showed board new­comer Goushi Kataoka, a vo­cal ad­vo­cate of ag­gres­sive eas­ing, dis­sented to the BOJ’S de­ci­sion to leave pol­icy un­changed, say­ing it is in­suf­fi­cient to meet the 2 per cent in­fla­tion tar­get.

Ja­pan’s econ­omy ex­panded at an an­nu­alised 2.5 per cent in the sec­ond quar­ter as con­sumer and com­pany spend­ing picked up. But price and wage growth re­main weak with firms still wary of pass­ing more of their prof­its to em­ploy­ees, forc­ing the BOJ to push back the tim­ing for reach­ing its price tar­get six times since de­ploy­ing a mas­sive stim­u­lus pro­gramme in 2013.

The BOJ now ex­pects in­fla­tion to hit 2 per cent in the fis­cal year end­ing in March 2020, ar­gu­ing that a tight­en­ing job mar­ket and solid eco­nomic growth will grad­u­ally push up prices.

Fri­day’s data also showed core con­sumer prices in Tokyo, avail­able a month be­fore the na­tion­wide data, were up 0.5 per cent in Septem­ber from a year ear­lier, match­ing a me­dian mar­ket fore­cast.

House­hold spend­ing rose 0.6 per cent in Au­gust from a year ear­lier in price-ad­justed real terms, but this was below the me­dian es­ti­mate of a 1.0 per cent in­crease and sug­gests that con­sumer spend­ing is slow­ing slightly af­ter a strong per­for­mance in April-june quar­ter.

“I’m not pes­simistic on con­sump­tion,” said Hiroshi Miyazaki, se­nior econ­o­mist at Mit­subishi UFJ Mor­gan Stan­ley Se­cu­ri­ties.

“The labour mar­ket is tight and dis­pos­able in­come is ris­ing. Con­sumer spend­ing can re­main on firm foot­ing.”

Mean­while, Ja­pan’s Nikkei share av­er­age ended al­most flat on Fri­day but posted its big­gest monthly gain this year as in­vestors re­built po­si­tions they had scaled back ear­lier this month on geopo­lit­i­cal con­cerns.

The Nikkei was down 0.03 per cent at 20,356.28 but posted a solid 3.6 per cent rise in Septem­ber, its first monthly gain in three months.

The broader Topix was down 0.08 per cent on the day at 1,674.5 but ended Septem­ber up 3.5 per cent.

“Month-end is hav­ing an im­pact here, and I don’t think you should be in­ter­pret­ing too much into the mar­ket be­ing down to­day,” said Stefan Wor­rall, di­rec­tor of Ja­pan eq­uity sales at Credit Suisse in Tokyo.

peo­ple walk by an elec­tronic stock board of a se­cu­ri­ties firm in tokyo on Fri­day.

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