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Japanese manufacturing falters, jobless rate drops in June

New data highlights the fragility of the recovery in the world's No. 3 economy.


TOKYO – Japan’s industrial output fell in June for the first time in five months, the government said as it released data highlighting the fragility of the recovery in the world’s No. 3 economy.

Manufacturing slipped 3.3% from the month before in June and was 4.8% lower than a year before, the Ministry of Economy, Trade and Industry said.

Such indicators suggest weaker growth in China may be sapping some of the momentum from the recovery.

However, other data showed the jobless rate edging to 3.9%, its lowest level since October 2008, when the economy was slammed by the global financial crisis. The jobless rate had remained at 4.1% during the previous few months.

The most recent data have officials questioning whether the government should go ahead with a promised sales tax increase that economists say could derail progress in restoring growth and breaking free of deflation.

The central bank governor, Haruhiko Kuroda, said Monday he believes the recovery is strong enough to weather a tax hike, which is needed to help redress ballooning deficits that have taken Japan’s national debt to record high levels.

Prime Minister Shinzo Abe has claimed progress with his “Abenomics” strategy of fighting deflation with aggressive monetary easing and strong government spending. But he has indicated he may consider amending the plan for a 3% increase, to 8%, next April.

Figures released earlier showed consumer prices rising 0.4% in June, but core inflation which excludes food and energy prices remained negative. Costs for food and energy have largely been pushed higher by the sharp weakening of the Japanese yen, which drives up costs for imported food and energy in this resource-scarce nation.

A key factor will be whether companies begin to invest more and raise wages, to help drive a recovery in consumer demand that accounts for most of Japan’s economic growth.

While sales are up by double digits at Tokyo’s toniest department stores, overall retail sales fell in June from the month before, with surveys showing consumer spending is slowing, Marcel Thieliant, an economist for Capital Economics, said in a report.

“Looking ahead, there are a number of reasons to doubt that the recent strong run of consumer spending can continue,” he said, noting that a $716 billion increase in household wealth due to the stock price rally earlier in the year accounts for only a small part of overall household wealth.

“With inflation now rising, income growth has to pick up as well for households to maintain their spending power,” he said. “The overwhelming majority of households views inflation as negative, and may rein in spending in response.”

©The Canadian Press