Japan's output, inflation rise as jobless rate dips

TOKYO • Japanese inflation and factory output picked up in February while the unemployment rate dipped to a two-decade low, official data showed yesterday, a rare string of upbeat news for the world's No. 3 economy.

But the positive figures were tempered by still-weak household spending and little evidence that a tight labour market was leading to pay rises and driving up prices.

Japan's core consumer prices, excluding volatile fresh food, rose 0.2 per cent from a year earlier, driven by a rise in energy prices, according to the government data.

The latest inflation rate is still a long way off the Bank of Japan's 2 per cent target, but it marked the second consecutive year-on-year rise after a pick-up in January ended a long string of declines.

Meanwhile, February industrial production expanded by a stronger-than-expected 2 per cent and the jobless rate fell to 2.8 per cent from 3 per cent the previous month, the lowest level since the mid-90s.

The figures are good news for an economy that has been struggling to mount a firm recovery and put years of deflation in the rear-view mirror.

Household spending remained weak, falling by a worse than expected 3.8 per cent from a year ago.

That marked 12 months of decline, although the February fall was exacerbated by 2016 being a leap year - meaning there was an extra day's spending to be accounted for.

"Overall, I had a good impression" of the data, said Mr Taro Saito, senior economist at NLI Research Institute. He added: "Because last year was a leap year, household spending looks worse than it really is. Excluding that factor, it was actually up in February."

While Japan's job market is tight, individual spending - which accounts for more than half of the country's gross domestic product - had remained in deep freeze.

And with cash-rich firms not splashing out on big pay rises, analysts are doubtful about a big pickup in spending any time soon.

"Japan's economy continued to record solid growth in the first quarter," Mr Marcel Thieliant, senior Japan economist at research house Capital Economics, said in a commentary. "However, there is no evidence that the tighter labour market is fuelling price pressures."

Japan has been struggling to reverse a years-long deflationary spiral of falling prices and lacklustre growth.

Prime Minister Shinzo Abe swept to power in late 2012 on a pledge to cement a lasting recovery with a growth plan dubbed Abenomics.

The scheme - a mix of aggressive monetary easing and huge government spending along with reforms to the economy - stoked a stock market rally and fattened corporate profits, but the effect on the wider economy has been less dramatic.


A version of this article appeared in the print edition of The Straits Times on April 01, 2017, with the headline 'Japan's output, inflation rise as jobless rate dips'. Print Edition | Subscribe