Jul 31, 2013

    Japan output drops but pick-up expected

    JAPAN'S factory output fell by the most in over two years last month, although the labour market improved, signs that Prime Minister Shinzo Abe's pro-growth policies are bearing fruit but still have a long way to go to establish a durable recovery.

    The first fall in industrial production in five months largely reflected manufacturers trying to avoid inventory build-up, and they forecast a brisk pick-up this month.

    The best levels of unemployment and job availability since 2008 augur well for the private spending that Mr Abe has sought to trigger - through aggressive monetary and fiscal stimulus - since he took office in December.

    The data serves as the six-month scorecard for Mr Abe, who is seeking to strike a balance between reviving growth and fiscal consolidation, while facing a tough decision on whether to go ahead with planned sales-tax hikes from next year.

    The 3.3 per cent month-on-month fall in industrial output was the largest since March 2011, when a massive earthquake and tsunami ripped through Japan's north-eastern coastal areas, Ministry of Economy, Trade and Industry data showed yesterday.

    Manufacturers expect output to rise 6.5 per cent this month and fall 0.9 per cent next month.

    "I think there is no change in the trend that production is expected to stay on a steady recovery as June trade data was good, benefits from the yen's weakness are appearing and domestic demand is solid," said chief economist Yoshiki Shinke of the Dai-ichi Life Research Institute.