Japan’s recovery has slowed from the second quarter but remains on course to push the economy out of deflation by the end of the year, according to a raft of data released on Friday.
Industrial production rose 0.2 per cent on the month in September, much lower than the market consensus of 2 per cent but still the first rise for two straight months in more than a year.
Nationwide core consumer prices, excluding fresh fruit, continued to fall in September, but by just 0.1 per cent. The October core CPI for Tokyo, seen as a leading indicator, fell 0.3 per cent compared with 0.4 per cent the previous month.
The core CPI is expected to push through zero by the end of the year as the effects of lower rice prices, and deregulated telecommunications and electricity prices fall out of the numbers.
Spending by wage-earner households fell 0.4 per cent on the year in September, adding to evidence that robust consumer spending in the second quarter ran out of steam in the summer.
Headline unemployment fell for the third month in a row, to 4.2 per cent, raising hopes that a tightening labour market will help revive the domestic recovery.
Kiichi Murashima, chief economist at Nikko Citigroup, said: “Some people say this is just a technical pause after unsustainable growth in the first half. Attention is now focused on whether the economy can accelerate again in the fourth quarter.”
Trade ministry forecasts suggest that industrial production will bounce strongly in the next two months, by 2.4 per cent in October and 1.9 per cent in November. Economists say they expect those numbers will turn out to be over-optimistic, though the trend will be clearly upwards.
Heizo Takenaka, economy minister, put a brave face on on Friday’s data, saying: “The economy is recovering moderately, and improvements in the corporate sector are clearly filtering through to the household sector.”
The Bank of Japan on Monday will release its half-yearly assessment on prices and economic activity, a document that will provide a big clue as to its thinking on the development of monetary policy.
Mr Murashima said it would be interesting to see how the bank justified its expected prediction of inflation of 0.4-0.5 per cent inflation for next year, given that the effect of higher oil prices should begin to fade from the numbers in the second quarter. Unlike in the US, core CPI in Japan excludes only fresh food, not energy prices.
On the improving labour market, considered the best guarantee of sustained domestic-led growth, Takuji Aida, economist at Barclays Capital, said: “We believe the unemployment rate will break below 4 per cent by the end of the fiscal year as companies have largely finished cutting excess staff and robust profits are enabling them to start hiring again.”
Recent signs of a resurgence in exports, particularly to the US, have made economists a little more relaxed about the slower pace of domestic recovery. However, they say that for Japan to return to economic normality, a substantial part of future growth will have to come from home.
