Japan has reported weaker-than-expected economic data, underlining the challenges the government faces as it tries to revive the country’s economy.
Industrial output fell 3.3% in June, from the previous month. Compared with the same month a year ago it fell 4.8%.
Meanwhile, household spending declined 0.4% from a year earlier. Analysts had expected growth of 1.0%.
Japan has been trying to boost domestic consumption in an attempt to revive its stagnant economy.
Analysts said that while the data was weak and highlighted the challenges faced by the government, it was not a cause for immediate concern.
“This is a minor blip, the overall trend is that of a recovery in Japan’s economy,” said Masaaki Kanno, Japan chief economist with JP Morgan Securities.
Japan has reported weaker-than-expected economic data, underlining the challenges the government faces as it tries to revive the country’s economy
PM Shinzo Abe’s government has unveiled a series of aggressive measures to boost domestic demand, which has been hurt in part by years of falling prices or deflation.
While falling consumer prices may sound good, they tend to hurt the economy as consumers and businesses put off big purchases in the hope of getting a better deal later on.
Policymakers and analysts have said that ending the deflationary cycle is the key to reviving Japan’s economy.
Earlier this year, the central bank doubled its inflation target to 2% in an attempt to boost consumer prices and spending.
There have been some indications that the steps are having an impact as data released last week showed that consumer prices rose in June, for the first time in more than a year.
The decline in Japan’s factory output was also bigger than forecast.
However, analysts said that the fall was likely to be temporary and predicted that production would jump in the coming months,
“Although June data for factory output was weak, manufacturers’ forecasts for July are strong,” said Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute.
“I think there is no change in the trend that production is expected to stay on a steady recovery as June trade data was good, benefits from the yen’s weakness are appearing and domestic demand is solid.”
According to a survey conducted by Japan’s Ministry of Economy, Trade, and Industry (METI), manufacturers expect production to rise by 6.5% in July.
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The Japanese yen has reached its lowest level since 2008 against the US dollar after the central bank began the latest round of its stimulus programme.
The yen fell as low as 98.85 against the dollar, before rebounding slightly.
Investors said the Bank of Japan’s plan to buy assets worth trillions of yen, which has government backing, would continue to weaken the currency.
As a result, the yen may break through the 100 mark against the dollar as early as this week.
The Japanese yen has reached its lowest level since 2008 against the US dollar after the central bank began the latest round of its stimulus programme
“This has really shaken up many people’s attitudes toward the Bank of Japan and the new government,” said Andrew Wilkinson, chief economic strategist at Miller Tabak and Co in New York.
“It feels like it’s gathered a whole new momentum behind it, as the doubters have joined the bandwagon and it’s becoming a self-fulfilling prophecy.”
Last week, the BOJ said it would double the supply of the currency in the market.
The central bank added that it would be much more aggressive in pursuing a 2% inflation target to boost growth.
A weak yen helps Japanese exporters keep their products competitive, as well as boosting profits earned overseas.
On Monday, exporters helped push the main Nikkei 225 stock index 3.1% higher, before the gains were pared back in later trading.
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Japanese shares have risen after finance ministers of the G20 group of nations avoided singling out Japan for criticism over the recent yen weakness.
The yen has dipped nearly 15% against the US dollar since November amid Japan’s efforts to stoke inflation.
There were concerns that a criticism from G20 may prompt Japan to alter its aggressive stance. The fears were that it would result in the yen rising again and hurt Japan’s plans to spur growth.
Japan’s Nikkei 225 index rose 2%.
Meanwhile, the Japanese currency continued to weaken. It fell 0.6% to 94.12 yen against the US dollar.
It also dipped 0.5% to 125.50 yen against the euro in early Asian trade.
“At the G20 meeting, there wasn’t as much criticism from emerging countries about the recent yen’s weakness as feared. That spurred yen selling,” said Kyoya Okazawa, head of global equities at BNP Paribas.
Japanese shares have risen after finance ministers of the G20 group of nations avoided singling out Japan for criticism over the recent yen weakness
Analysts say the G20 communiqué at the end of its meeting in Moscow on Saturday was an endorsement for Japan’s recent monetary moves.
The policies have seen Japan’s central bank, the Bank of Japan, double its inflation target to 2% in attempt to spur domestic consumption.
The central bank has also expanded a key stimulus measure aimed at keeping long term interest rates low.
Analysts say that as Japan continues to pursue these policies, the yen is likely to weaken further.
“With Japan, as yet, using various measures to ease monetary conditions domestically, we do not expect a large international backlash against its efforts and look for the Japanese yen to continue to decline gradually as the easier monetary conditions feed through,” Barclays Capital said in a note.
A weak yen bodes well for the Japanese exporters and its economy on various fronts.
To begin with, it makes their goods more affordable to foreign buyers. It also helps boost the exporters’ profits when they repatriate their foreign earnings back home.
And as firms see their profits rise, they are likely to have a bigger cash pile to invest in research and development or expansion of their facilities.
Investment in research helps the firms become more competitive as they develop new products. Meanwhile, increased capital investment helps boost Japan’s overall economic growth.
