Japan household spending slumps, output flat as tax pain persists
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.
Weak exports left companies with a huge pile of inventories, forcing them to continue cutting back on factory output, separate data showed.
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 generally expect Abe to approve another tax hike in December, but that decision promises to be politically divisive, coming just as the government hammers out details of a promised corporate tax cut.
The jobless rate rose to 3.8% in July from June’s 3.7% but the jobs-to-applicants ratio remained at a 22-year high of 1.10, a good omen for the BOJ.
Japan’s economy shrank at an annualized 6.8% in the second quarter from the previous three months, more than erasing the 6.1% first-quarter surge in the run-up to the sales tax hike.
Many analysts agree with the BOJ that growth will rebound in the current quarter, though some warn that the recovery may falter later this year if the tax-hike pain is prolonged and exports fail to emerge from the doldrums.
Source: Reuters
