By Dow Jones Business News, September 29, 2013, 08:45:00 PM EDT
Japan Economic Recovery Remains Uneven As Production Declines
TOKYO--Japan's economic recovery trend remains uneven as a recent slowdown in exports and consumer spending weighed on
production, data showed Monday, likely strengthening the case for careful policy coordination ahead of a planned sales-
tax hike in April.
Japan's industrial output fell 0.7% in August from the previous month, the government said Monday. Reflecting the
recent weakening in export growth and consumer spending, production was weaker than a 0.4% decrease expected. Output of
consumer durables such as cars and appliances fell 2.5%.
While households need to spend more to cover basic necessities because of the weaker yen -- leaving much less money
for discretionary items -- companies haven't yet fully taken advantage of the weaker yen to lift domestic production and
take a bigger share of the global market.
Japan's biggest auto maker by volume, Toyota Motor Corp. (7203.TO), said last week that production in its home market
fell 11% in August from a year earlier, the third straight month of decline.
"Exports aren't growing strongly these days," said Junko Nishioka, chief economist at RBS Securities Japan.
Nevertheless, overall output levels were supported by strength in several sectors benefiting from public-works demand.
Meanwhile, retail sales rose 1.1% in August from a year earlier on the back of an uptick in textile and apparel sales.
Data also showed Monday that sales at large-scale retailers fell 0.1% on year, after adjustment for a change in the
number of stores.
There are more bright spots elsewhere. Housing starts increased 8.8% in August from a year earlier, the 12th
consecutive month of gains, as consumers in general became more optimistic about the economic outlook expecting higher
prices ahead. Construction orders jumped 21.4% in August from a year earlier as demand for retail and logistics
According to a corporate survey included in the industrial production data released by the Ministry of Economy, Trade
and Industry, companies expect output to rise 5.2% in September and increase 2.5% in October.
The ministry kept unchanged its assessment of the data, saying production is "gradually picking up."
Many economists say it is inevitable that the economy will see increases in demand ahead of the sale tax hike in April
and falls thereafter. But the negative effects shouldn't last as long as in 1997, when Japan last raised the sales tax,
due to an expected stimulus package to be announced Tuesday. The package could total Y5 trillion and is set to include a
cut to corporate taxes.
Junichi Makino, chief economist at SMBC Nikko Securities, said that because the package cushions the tax hike's
negative effects, the outlook for the economy hinges on whether Japanese companies will be able to increase exports,
taking advantage of a favorable corporate operating environment.
"The government is letting corporations determine the outlook of the economy," he said. "If the government were taking
charge of the economy, it would be spending Y5 trillion in public works."
Write to Mitsuru Obe at firstname.lastname@example.org and Kosaku Narioka at email@example.com
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