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Business News/ News / World/  Japan’s output climbs most since 2011 as tax rise looms
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Japan’s output climbs most since 2011 as tax rise looms

Japan industrial output rises 4% in January; consumer prices excluding fresh food climbs 1.3%

Economic growth is set to surge this quarter as consumers and businesses splurge ahead of the April tax increase. Photo: Reuters Premium
Economic growth is set to surge this quarter as consumers and businesses splurge ahead of the April tax increase. Photo: Reuters

Tokyo: Japan’s industrial production grew the most since 2011, indicating the economy is strengthening as a looming sales-tax bump stimulates demand, while inflation matched the highest level in more than five years.

Output rose 4% in January from the previous month, the trade ministry said on Friday in Tokyo, more than a 2.8% median estimate in a Bloomberg News survey of 33 economists. Consumer prices excluding fresh food climbed 1.3% from a year earlier, the statistics bureau said.

Economic growth is set to surge this quarter as consumers and businesses splurge ahead of the April tax increase. The test for Abenomics and the Bank of Japan will be steering the nation through the aftermath, with the economy set to contract for a quarter and analysts projecting that governor Haruhiko Kuroda will be forced to add to already unprecedented easing.

“Demand is likely to decline considerably after the sales-tax increase," said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. The tax-rise may have a harsher impact on the economy than the government and BOJ predict.

The yen rose 0.3% to trade at 101.86 against the dollar at 10:50 am in Tokyo. The Topix stock index fell 0.5%, headed for its second monthly loss after a 52% rise last year.

Manufacturers plan to cut output 3.2% next month—the most since the record earthquake and tsunami in March 2011, the trade ministry said.

Additional easing

The economy is forecast to contract an annualized 3.9% in the April to June period, slumping after a projected fifth straight quarter of growth, according to a Bloomberg survey.

Twenty-five of 34 economists forecast the BOJ will add to stimulus by the end of September, with 13 of those projecting action by the end of June, according to a Bloomberg survey conducted 6-12 February.

The BOJ said it aimed to drive core inflation to 2% in about two years when Kuroda boosted easing last April. Most board members said that target would likely be reached toward the latter half of the two-year projection period through March 2016, according to minutes of January’s policy meeting.

The goal may take some time to achieve, board member Sayuri Shirai said in a speech at Columbia University on 27 February, according to a posting on the central bank’s website.

BOJ target

She said a relatively large difference remains between the BOJ’s inflation forecasts and those of economists, and the two-year time horizon for reaching the goal shouldn’t be rigid.

Barclays Plc. sees it taking until around 2017 for core inflation to reach 2%, economists Kyohei Morita and Yuichiro Nagai wrote in an e-mailed note.

Economy minister Akira Amari said last week that Japan has yet to exit from 15 years of deflation.

Surging production of transport equipment and machinery helped to drive output to its biggest gain since June 2011. Household spending jumped 1.1% from a year earlier, more than 0.5% projected in a Bloomberg survey.

Retail sales posted the biggest increase in January since April 2012, rising 4.4%t on year to ¥11.7 trillion ($114.8 billion), the most for the month of January in data back to 1980, the trade ministry said. The consensus forecast was for a 3.8% rise.

‘Unfavorable’ inflation

Shirai said many Japanese households see price gains as unfavorable.

Overall consumer prices rose 1.4% from a year earlier, while inflation excluding perishables and energy held steady at 0.7%.

The job market showed further signs of improvement, which could start to support wages and help households deal with the higher sales tax and inflation.

While the unemployment rate held steady at 3.7% in January as forecast, demand for workers picked up. There were 1.04 open positions for every job seeker, the most since August 2007.

Wages excluding overtime and bonuses fell 0.6% in December from a year earlier—a 19th straight monthly decline.

Labor unions at all of Japan’s automakers are seeking increases in base salaries as companies such as Toyota Motor Corp. and Honda Motor Co. forecast record profits this fiscal year.

The BOJ will judge the economic outlook cautiously in the first half of next fiscal year starting April as it expects indicators to be volatile after the sales-tax increase, policy board member Koji Ishida, said in a speech in Saitama on 26 February.

Having jump started Japan’s economy with fiscal and monetary stimulus, the focus is on whether Abe follows through on steps to loosen business regulations in a growth strategy due to be announced in June.

An incomplete package could restrain growth, shaving 2% from Japan’s economy by the end of the decade, the International Monetary Fund said in a report in August. Bloomberg

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Published: 28 Feb 2014, 09:16 AM IST
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