Japan's poor July factory output casts doubt on Abenomics

A factory in Kawasaki city, near Tokyo. Japanese industrial production showed no growth in July, after an expansion of 2.3 per cent in June. The result was worse than a forecast of a 0.8 per cent expansion in a survey of economists by Bloomberg News.
A factory in Kawasaki city, near Tokyo. Japanese industrial production showed no growth in July, after an expansion of 2.3 per cent in June. The result was worse than a forecast of a 0.8 per cent expansion in a survey of economists by Bloomberg News.PHOTO: REUTERS

TOKYO • Japan's factory output stagnated in July from the previous month, data showed yesterday in a further blow to the world's third-largest economy.

The lacklustre result came after a series of disappointing data, which raised a red flag for an economy that stalled in the second quarter.

A drop in household spending, weak exports and disappointing inflation figures have dealt a blow to Japan's war on deflation, which will heap fresh pressure on the Bank Of Japan (BOJ) to unleash another wave of growth-boosting stimulus.

Industrial production showed no growth in July, according to the Ministry of Economy, Trade and Industry, after an expansion of 2.3 per cent in June.

The July result was worse than a forecast of a 0.8 per cent expansion in a survey of economists by Bloomberg News.

Shipments, meanwhile, increased 0.9 per cent, the ministry said, a slower pace than the 1.7 per cent expansion recorded the previous month.

Japan registered zero growth in the April-June quarter, as weak demand overseas and a fall in business spending dented activity.

Those worse-than-expected figures aggravated doubts among many economists as they increasingly write off Prime Minister Shinzo Abe's bid to fire up growth, dubbed Abenomics.

His plan - a mix of massive monetary easing, government spending and red-tape slashing - initially brought the yen down from record highs, setting off a stock market rally and boosting corporate profits.

But it has stumbled more than three years after it was unveiled, and Japan's major exporters have seen their bottom line dented by the sharp reversal in the currency.

Wild volatility on global financial markets and Britain's shock decision to leave the European Union stoked demand for the yen as a safe investment in times of turmoil.

The focus will now turn to the BOJ, which disappointed markets at its late July meeting by leaving its 80 trillion yen (S$1.06 trillion) annual bond-buying programme - a cornerstone of Abenomics - unchanged. Mr Abe's promises to cut through red tape have been slower than hoped, and plans to buoy Japan's economy look increasingly unrealistic.

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A version of this article appeared in the print edition of The Straits Times on September 01, 2016, with the headline 'Japan's poor July factory output casts doubt on Abenomics'. Print Edition | Subscribe