Deflation fears overshadow Japan recovery signs

0

TOKYO: Japan’s economy showed fresh signs of recovery yesterday as factory output picked up and unemployment fell slightly, but a drop in consumer prices highlighted that deflation remains a key threat.Asia’s biggest economy last year emerged from its worst post-war recession, growing in the second and third quarters thanks to rebounding exports, much of it to booming China, and government pump-priming measures.

As overseas demand has picked up, Japan’s industrial output rose 2.2 per cent month-on-month in December, the 10th straight monthly rise, new data showed.

December also saw the first year-on-year rise in exports for Japan in 15 months, according to figures released Wednesday.

“The fresh data show that Japan is on a steady path to recovery,” said Taro Saito, senior economist at NLI Research Institute.

“Concerns that Japan’s economy will get mired in a double-dip recession have eased.

“Given that exports are rebounding steadily, Japan’s economic recovery is likely to continue, even if its pace slows slightly.”

The finance ministry said in its October-December quarterly report yesterday that, although the world’s number two economy remains “in a severe situation, some areas are showing signs of picking up.”

Japan’s jobless rate fell to 5.1 per cent in December, improving by 0.1 percentage point from the previous month, against market expectations of a rise to 5.3 per cent, government data showed.

However, deflation remains a key threat to the Japanese economy.

A fall in general prices cuts into corporate profits, leading firms to slash jobs and put off capital investment that generates growth.

Core consumer prices fell 1.3 per cent in December from a year earlier, the 10th straight month of drops, government data showed.

Prices in Tokyo fell 2.0 per cent year-on-year in January.

The index is seen as a bellwether because it comes a month before national figures.

“Declines in prices of services are notable, and this kind of price drop can easily translate to weaker wages for workers in the industries,” warned Barclays Capital chief Japan economist Kyohei Morita.

“Although the risk is not big yet, we should be careful to monitor Tokyo’s wages and price trends,” he said.

“The Tokyo metropolitan area may fall into a deflationary spiral down the road.”

Last month Japan’s central bank said it was a “critical challenge” for Japan’s economy to overcome deflation, which also hurts demand because it encourages consumers to put off purchases. — AFP