Japan factory output rises 2.5% in Jan

Positive figures for manufacturing, retail show that recovery is intact

TOKYO: Japanese manufacturers increased production at the fastest pace since May and retail sales snapped a 16-month slump, signaling the recovery is intact even as the government calls for more action to fight deflation.

Factory output rose 2.5 percent in January from a month earlier, the 11th straight gain and the longest streak in more than 12 years, the Trade Ministry said on Friday in Tokyo. Retail sales unexpectedly jumped 2.6 percent from a year earlier.

A key gauge of consumer prices slid for an 11th month, prompting Finance Minister Naoto Kan to repeat a request for the Bank of Japan to "find various ways" to end deflation. Friday's production numbers suggest the economy will keep expanding on the back of Asian demand and the central bank is unlikely to act unless financial markets become volatile, said Yoshimasa Maruyama, a senior economist at Itochu Corp in Tokyo.

"Japan's economy will probably lose some of its momentum for a while, but the pace of slowdown will be softer than we expected," Maruyama said. "The BOJ won't take additional actions just for the sake of beating deflation."

The yen traded at 89.31 per dollar at 11:18 am in Tokyo from 89.22 before the reports. It has climbed 4.2 percent this year, threatening exporters' repatriated profits. The Nikkei 225 Stock Average rose 0.4 percent.

Industrial production rose more than the 1 percent median estimate of 28 economists surveyed by Bloomberg News. The gain in retail sales was the biggest in almost two years, confounding analysts' median projection for a 0.2 percent drop.

Export revival

More than $2 trillion in global stimulus spending helped exports surge the most in almost 30 years in January. Brighter global prospects are encouraging companies from Toshiba Corp to Mazda Motor Corp to increase production capacity.

The world's second-largest economy expanded at an annual 4.6 percent rate last quarter, a government report showed last week. The export-led acceleration was driven by Asia, especially China, Japan's biggest overseas customer.

"Right now, the economic recovery is being pulled by exports and inventory adjustments," said Naoki Iizuka, senior economist at Mizuho Securities Co in Tokyo. "Once we hit the second quarter, manufacturers' capital spending will be a new contributor to the economy's growth."

Government incentives to purchase energy-efficient appliances and cars spurred retail sales, and cold weather encouraged purchases of winter clothes, Iizuka said.

"We're continuing to see the effects of government stimulus measures," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities Co in Tokyo. "In the meantime, employment has at least stopped worsening."

The retail revival is bolstering sales for companies including Rakuten Inc. The Internet shopping operator swung to a net income of 53.6 billion yen in the year ended Dec 31, compared with a net loss of 55 billion yen a year earlier.

Consumer confidence rose for the first time in four months in January, after the unemployment rate fell.

Still, 19 months of tumbling wages will force consumers to tighten their purse strings once government incentives start to fade, Shikano said.

Prices excluding fresh food slid 1.3 percent in January from a year earlier, the statistics bureau said.

Declines have eased since peaking at 2.4 percent last August, largely because of costlier crude oil. Excluding energy and food, prices slumped 1.2 percent, matching the previous month's drop as the sharpest since records began in 1971.

Bloomberg News

(China Daily 02/27/2010 page10)