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Factory output numbers hint at Japan acceleration

Tokyo: Growth in Japan’s factory output likely accelerated in January and core inflation hovered near five-year highs, a Reuters poll showed, underscoring the ongoing economic recovery despite fears that momentum may soon start to fade.

Retail sales probably increased while job conditions held firm, in a sign that an improving labour market and firm demand are driving private consumption, which accounts for 60 per cent of the economy.

The slew of indicators, all due next Friday, come on the heels of data earlier this week that showed weaker-than-expected fourth quarter growth due to disappointing exports, capital spending and private consumption.

Weak readings could heighten market expectations that further stimulus will need to be rolled out by the government and the Bank of Japan (BoJ), which remain upbeat on the economy despite worries about the potential blow from a planned sales tax hike in April and weak demand from emerging economies.

“The GDP data was disappointing but I expect positive readings from January data due to last-minute demand [before the tax increase kicks in],” said Masamichi Adachi, senior economist at JPMorgan Securities Japan. “Still, risks are skewed to downside due mainly to weak external demand. If markets remain jittery, the BoJ could ease policy further preemptively in April when private consumption drops and signs of economic deterioration emerge.”

A separate Reuters poll this week showed the BoJ is expected to ease policy further by this summer to help boost the economy as the effects from Prime Minister Shinzo Abe’s stimulus strategy begin to wane.

Japan’s industrial output, which closely correlates with economic cycle, rose 3.0 per cent in January from the previous month, following a 0.9 per cent gain in December, according to the median estimate of 29 economists in a Reuters poll.

That would be the fastest growth since last July as companies are expected to ramp up production of cars and non-durables to meet rising demand before the tax hike.

The spurt in demand probably helped boost retail sales by 3.8 per cent in January from a year ago, which would mark a sixth straight month of annual gains, the Reuters poll showed.

Both output and retail sales data will be released by the trade ministry on Friday at 8.50am (3.50am UAE).

The poll also showed Japan’s core consumer price index (CPI), which excludes fresh food prices but includes oil products, rose 1.2 per cent year-on-year in January, easing from 1.3 per cent in December — the fastest in more than five years.

The central bank maintained its massive monetary stimulus at this week’s policy review, aiming to meet a two per cent price goal around early 2015, which is seen by many analysts as a tall order.

Analysts expect that inflation will struggle to pick up pace in the coming months as effects of a weak yen on imported goods taper off and private consumption loses steam after the sales tax is raised from five per cent to eight per cent in April.

Japan’s jobless rate was probably unchanged at a six-year low of 3.7 per cent in January.

Job availability as measured by the jobs-to-applicants ratio edged up to 1.04 from 1.03 in December, which would be the highest reading since August 2007, meaning more than one job is available per job seeker.

Japanese household spending rose 0.2 per cent in the year to January, marking a fifth straight month of annual gains but slowing from 0.7 per cent in December, the Reuters poll showed.

On a month-on-month basis, however, household spending likely rose 1.7 per cent, after falling 0.7 per cent in December.

The internal affairs ministry will issue CPI, jobless and household spending data on Friday at 8.30am.

Land ministry data due on Friday at 2.00pm will likely show housing starts rose 15.0 per cent in January from a year ago, up for the 17th month in a row, albeit at a slower pace than 18.0 per cent in December, according to the poll.