Japan’s industrial output increased the most in more than three years while unemployment worsened, retail sales slid and inflation slowed as the nation released its economic report card for January.
Production jumped 4% in January from the previous month, exceeding forecasts with the biggest gain since June 2011, according to trade ministry data. Retail sales fell 1.3%, household spending dropped and the central bank's main inflation measure slowed to 0.2%, excluding sales-tax effects.
A pick up in exports driven by the weaker yen and stronger demand in the US helped fuel manufacturing. The drop in the exchange rate is also increasing costs for households that have seen living expenses outpace incomes, highlighting the stakes for Prime Minister Shinzo Abe as he tries to get companies to boost pay in this spring's negotiations with labour unions.
"The economy is recovering steadily, mainly on the back of external demand," said Izumi Devalier, an economist at HSBC Holdings Plc, told Bloomberg News. "We haven't really seen much of a recovery in household consumption at this stage."
The yen has declined 8.5% against the dollar since Bank of Japan governor Haruhiko Kuroda boosted already- unprecedented easing on Oct 31. The Japanese currency was trading at 119.27 at 11.09am in Tokyo.
The Topix share index rose 0.3%, bringing its gains to 51% since Mr Kuroda introduced the monetary stimulus plan in April 2013.
Inflation gauges
Japan's inflation rate fell to its lowest level since just after Tokyo launched its high-profile offensive aimed at conquering years of falling prices and tepid growth, data showed Friday. The disappointing figures - weighed by weak consumer spending and falling energy prices - challenge Mr Kuroda's claim that inflation is on an uptrend.
Pedestrians cross a street of the Ginza shopping district in Tokyo on Feb 27. Japan's inflation rate has fallen to its lowest level since just after Tokyo launched a high-profile offensive aimed at conquering years of falling prices and tepid growth. (AFP photo)
Consumer prices excluding fresh food rose 2.2% from a year earlier, the statistics bureau said. That was less than the median projection of 2.3%. Stripped of the effect of a sales-tax increase last April, core inflation - the BOJ's key measure - was 0.2%, below the BOJ's target for 2% inflation.
Mr Kuroda told parliament on Thursday there'd been no major negative shift in inflation expectations, standing his ground on a view laid out last week when he said further measures weren't warranted at this point.
AFP said the figures may also aggravate doubts over Tokyo's wider bid to kick-start the world's No 3 economy and reverse years of stagnant or falling prices which were blamed for holding back growth and denting firms' expansion plans.
Sustained inflation is a key measure of Mr Abe's three-pronged growth plan, dubbed Abenomics, to resuscitate Japan's long-suffering economy.
Bloomberg said economists at JPMorgan Chase & Co. said last month that Japan is likely to fall back into a temporary spell of deflation by March that could last through November. Economists at BNP Paribas SA estimate prices falling as early as February.
Twenty-six of 35 economists in a Feb 5-10 Bloomberg survey forecast the BoJ will expand monetary stimulus by the end of October.
Cost of living
Even with consumer price gains slowing, the cost of living is still outpacing pay gains. Wages adjusted for inflation fell 1.7% in December from a year earlier, an 18th straight drop, according to government data released earlier this month.
Megmilk Snow Brand Co cited higher costs stemming from a weak yen for plans it announced this week to raise prices of butter and cheese by as much as 8.2% from April.
Mr Abe, in meetings with business and labour-union leaders, has urged companies to pass along some of the benefit of rising corporate profits. Mr Kuroda has called on business leaders to use profits more productively, saying they could use their cash to boost investment in facilities and jobs.
A man holding an umbrella crosses a street at a business district in Tokyo Feb 26. Japan Inc is under pressure to boost pay to keep a fragile economic recovery afloat, but even hefty wages increases from the biggest companies may prove to be a hollow victory for Prime Minister Shinzo Abe. (Reuters photo)
Japan's top labour-union association said it will seek the biggest increase in monthly wages in more than two decades as it makes inflation the key point in the annual pay talks, according to the group's president, Nobuaki Koga.
"Domestic consumption is still not resilient but it will become stronger later this year as wages increase as a result of the spring negotiations," said Yoshitaka Suda, an economist at Nomura Holdings Inc.
Jobs outlook
But even as unions push for higher wages, Japan's unemployment rate worsened for the first time in four months to 3.6% in January, from 3.4% the previous month, Kyodo News reported.
The number of unemployed totalled a seasonally adjusted 2.35 million, up 70,000 from the previous month, while the number with jobs was 63.74 million, down 20,000 from December, the Ministry of Internal Affairs and Communications said.
The ratio of employment offers to seekers was flat at 1.14 in January from a revised figure in December, the highest level since April 1992. The figure means 114 positions were available for every 100 job seekers, according to the Ministry of Health, Labor and Welfare.
An internal affairs ministry official attributed the increase in the unemployment rate to a rise in the number of people seeking jobs.
"Employment conditions are generally improving," the official said.