Japan household spending slumps, output flat as tax pain persists
Credit: Reuters/Yuya Shino
A woman looks at food products at a supermarket at a shopping district in Tokyo July 29, 2014.
While the Bank of Japan is in no mood to expand monetary stimulus any time soon, the data will keep it under pressure to act if the economy fails to gather momentum after contracting in the April-June quarter, analysts say.
Separate data showed core consumer inflation, which excludes volatile prices of fresh foods but includes oil products, hit 3.3 percent in the year to July, matching a median market forecast.
When excluding the effect of the April tax hike, it stood at 1.3 percent, still distant from the 2 percent inflation target the Bank of Japan pledged to meet sometime next year.
Industrial output rose 0.2 percent in July, much less than a 1.0 percent increase projected in a Reuters poll, data by the Ministry of Economy, Industry and Trade showed.
That was a tepid rebound from a 3.4 percent fall in June, the fastest drop since the March 2011 earthquake, as companies slowed production in response to weak exports and post-tax domestic demand.
Manufacturers surveyed by the ministry, however, expect to raise output by 1.3 percent in August and by 3.5 percent in September.
Household spending fell 5.9 percent in July from a year earlier, more than a median market forecast for a 3.0 percent drop, due to the higher sales tax and bad weather that kept consumers at home instead of going out shopping.
Japan's economy shrank at an annualised 6.8 percent in the second quarter from the previous three months, more than erasing the 6.1 percent first-quarter surge in the run-up to the sales tax hike.
Many analysts agree with the BOJ that growth will rebound in the current quarter, though some warn that the recovery may falter later this year if the tax-hike pain is prolonged and exports fail to emerge from the doldrums.
Despite some weak signs in the economy, the BOJ is optimistic that a tightening job market will lead to higher wages and more income for households to spend, thereby keeping Japan on track to meet its 2 percent inflation target.
The jobless rate stood at 3.8 percent in July, compared with a median market forecast for a 3.7 percent rate, with the jobs-to-applicants ratio at a 22-year high of 1.10, data showed on Friday.
(Additional reporting by Tetsushi Kajimoto; Editing by Eric Meijer & Shri Navaratnam)
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