Reuters
Japanese household spending fell much more than expected and factory output remained weak in July after plunging in June, government data showed, suggesting that soft exports and a sales tax hike in April may drag on the economy longer than expected.
While the Bank of Japan is in no mood to expand monetary stimulus any time soon, the data undermines the BoJ’s rosy economic forecasts and will keep it under pressure to act if the economy fails to gather momentum, analysts say.
The soft readings may also fuel speculation that the government could delay a second sales tax increase scheduled for next year, or try to compile another fiscal stimulus package, which would further worsen Japan’s debt burden.
“Production and consumption are both stagnating, and the economy is clearly undershooting projections of the government and the BoJ,” said Taro Saito, senior economist at NLI Research Institute.
“The BoJ will be forced to cut its economic view sooner or later, although it is unlikely to move anytime soon as it argues for rising inflation.”
Household spending fell 5.9% in July from a year earlier, nearly double the drop forecast in a Reuters poll, as the higher levy and bad weather kept consumers at home instead of going out shopping. Weak exports left companies with a huge pile of inventories, forcing them to continue cutting back on factory output, separate data showed.
Industrial output rose 0.2% in July, much less than a 1% increase projected in a Reuters poll, data by the Ministry of Economy, Industry and Trade showed. That was a tepid rebound from a 3.4% fall in June, the fastest drop since the March 2011 earthquake.
Manufacturers expect output to rise 1.3% in August and 3.5% in September. But a ministry official told a briefing there was uncertainty on whether production will rise as companies had continued to overestimate their outlook plans.
Most industries, except for makers of industrial machinery, cut output in July and an index gauging inventory hit the highest level since November 2012, underscoring the view the post-tax slump in consumption was bigger than expected.
Analysts expect factory output in July-September to fall from the previous quarter, suggesting that any rebound in the economy will be modest and casting doubt on the BoJ’s view the recovery will be strong enough to lift inflation to 2%.
“The BoJ says now that output is rising as a trend, but I think it’s hard to continue saying so with today’s data as output has been falling after peaking in January,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.