In Bad Sign for BOJ Target, Japan Industrial Output Stalls, Retail Sales Miss

In a worrying sign that the economy may be losing some momentum due to weak consumer spending and exports, Japan’s industrial output stalled in September.

Providing further evidence that private consumption remains a drag on growth, separate data showed retail sales fell more than expected in September.

Compared to the previous month, industrial output was unchanged in September. Data by the Ministry of Economy, Trade and Industry showed on Monday that compares with the median estimate in a Reuters poll of a 1.0 percent increase and followed a 1.3 percent increase in August.

Expectations that the Bank of Japan will yet again push back the timing of its price target could be heightened by the lackluster factory output, along with other data showing weak consumption and falling consumer prices.

As gains in autos and construction equipment were offset by declines in semiconductor and personal computer production, industrial output was flat in September.

While being overly optimistic as forecasts, manufacturers surveyed by the ministry expect output gain 2.1 percent in November and to rise 1.1 percent in October.

Separate data from the trade ministry showed that a slightly more than a median market forecast for a 1.8 percent decline was noted as retail sales fell 1.9 percent in September from a year earlier.

The BOJ is likely to hold off on expanding stimulus at a meeting ending on Nov. 1.

Reflecting weak consumption and falling import costs from a strong yen, the central bank will cut next fiscal year’s inflation forecast slightly in a quarterly evaluation of its forecasts due at the rate-setting meeting.

“I don’t expect output to rise significantly for the time being,” said Norio Miyagawa, senior economist at Mizuho Securities.

“Domestic demand simply is not strong enough. The BOJ has sent a message that monetary policy is on hold for now. We need more effort from the private sector to increase wages.”

The timeframe for hitting its ambitious inflation target beyond BOJ Governor Haruhiko Kuroda’s five-year term that ends in April 2018 could also be extended in the review. At present, during the fiscal year ending in March 2018, the BOJ projects inflation to reach 2 percent.

Although the bank stood ready to ease if external shocks threaten achievement of the inflation target, Kuroda has said that he saw no immediate need to act.

Since the BOJ’s new policy framework, which targets interest rates rather than base money, is one better suited for a long-term battle to reach its price goal, analysts are also of the view the BOJ would be in no rush to ease.

In coming months, output may not pick up much, economists say.

According to Daiju Aoki, economist at UBS Securities, there were signs that high inventories in some industries could curb future output, even as inventories fell 0.4 percent versus a 0.3 percent increase in the previous month on the overall.

Noting the fastest gain in six months, there was a 14.1 percent jump  in inventories of mobile phones and car navigation systems.

As the BOJ’s negative interest rate policy pushes down rates on car loans, the domestic auto sales grew faster than a 2.1 year-on-year increase in August and rose an annual 2.3 percent in September and was one stand out.

(Adapted from CNBC & The Indian Express)

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Categories: Economy & Finance, Uncategorized

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