Lacklustre Japan data paints gloomy picture for Abenomics

Lacklustre Japan data paints gloomy picture for Abenomics

Japan released a string of lacklustre economic data Friday, with inflation hitting its lowest level in a year, dealing another blow to Tokyo's attempts to conquer years of falling prices and tepid growth.

Japanese consumer inflation comes in at 2.9% in October compared with a year earlier, matching market forecasts but slowing from 3% in September.

The figures come after Prime Minister Shinzo Abe called a snap election for next month and delayed a sales tax hike after a previous levy increase hammered spending and pushed the world's number three economy into recession.

Japanese consumer inflation came in at 2.9% in October compared with a year earlier, official data showed, matching market forecasts but slowing from 3% in September.

Prices mainly rose largely because Tokyo raised the sales tax from 5% to 8% on April 1.

Adjusted for the hike, nationwide core inflation rate came in at 0.9%, against 1% in the previous month and its lowest level since October 2013.

The weak reading makes the Bank of Japan's 2% inflation target -- which it initially aimed to hit next year -- look increasingly out of reach.

The BoJ shocked markets last month by saying it would expand its asset-buying stimulus programme to about 80 trillion yen ($676 billion) annually, as part of Tokyo's bid to overcome deflation and kickstart the economy.

"Even despite the BoJ's surprise move, we maintain our view that there is a very long way to go before achieving the +2% target," Credit Agricole said.

The yen weakened further after the reading with the dollar at 118.21 yen against 117.74 yen in London on Thursday.

Also Friday, figures showed factory production in October edged up a better-than-expected 0.2% on-month, the second straight increase, as exports improved.

"It is a positive set of data that hints at hopes for future recovery in production," SMBC Nikko Securities said in a note.

- Mixed picture -

Separate figures showed the country's unemployment rate slipped to 3.5% from 3.6%, while retail sales rose 1.4% in October. However, household spending fell 4% on-year, the seventh successive decline.

"Although real GDP growth continued to be negative into July-September and Japan was in technical recession, demand for labour among firms is still robust likely thanks to the waning impact of (the) consumption tax hike," said Marcel Thieliant from Capital Economics.

But "despite the tight labour market, inflation continues to moderate... Price pressure should moderate further in the near-term, as the recent plunge in crude oil prices has yet to be reflected in the cost of energy imports," he added.

April's tax rise -- designed to help pay down one of the world's largest public debt mountains -- delivered a body blow to Abe's efforts to rev up growth, just as the long-laggard economy appeared to be turning a corner.

In response, Abe put off another hike due in late 2015 and called a snap election for next month that he described as a referendum on his policies, although observers said it was a strategic move to fend off party rivals ahead of a leadership vote next year.

Abe's growth blitz -- dubbed Abenomics -- was launched in 2012 and calls for big government spending as well as massive monetary easing and an overhaul of the highly regulated economy.

The cornerstone is the BoJ's inflation target, which aimed to reverse years of falling prices that gave consumers an incentive to hold off spending in the knowledge that goods would be cheaper in the future.

That created a deflationary spiral that held back wage growth and new hiring as firms capped their expansion plans.

Preliminary GDP data this month showed Japan's economy shrank 0.4%, or at an annualised rate of 1.6%, in the July-September quarter.

That was well below market expectations for a 0.5% expansion, and followed a 1.9% contraction in the April-June quarter -- or 7.3% at an annualised rate.

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