Research and analysis

Japan - disappointing economic data in November 2015

Published 5 January 2015

This research and analysis was withdrawn on 3 August 2016

This publication was archived on 4 July 2016

This article is no longer current. Please refer to Overseas Business Risk – Japan

This publication was archived on 4 July 2016

This article is no longer current. Please refer to Overseas Business Risk – Japan

Summary

New economic data shows how much April’s VAT rise continues to impact Japan’s economy as it prepares a new economic stimulus package/budget following December’s general election. Real wages, Inflation, Industrial production and the savings ratio all fall while the number of non-regular employees reaches a record high. More calls for wage increases next year.

Detail

Inflation lower

Core inflation in November fell 0.2% to 2.7% (ex. fresh food), its lowest increase in 14 months or 0.7% after adjusting for April’s VAT tax rise. The rate of increase in energy costs rose 3.9% (Y-O-Y), a fall from October’s 4.9%. December’s core CPI for Tokyo – considered a leading indicator – came in at 2.3% (November 2.4%) suggesting nationwide inflation will slow further next month.

Unemployment down but the number in non-regular roles continues to rise

Japan’s unemployment rate fell 0.2% to 3.3%. The number of employed people in Japan was 63.71 million (unchanged Y-O-Y). By industry, the care/welfare and ICT sectors added 350,000 and 140,000 jobs during November compared to the same period last year but the manufacturing industry lost 290,000. Male unemployment is now at 3.6% and 2.9% for women. For the first time, since comparative data became available in 1984, over 20 million or 30% are now in ‘non-regular’ contracts which come with less job security.

The number of unemployed in November 2014 fell by 300,000 (12% Y-O-Y) to 2.19 million. Japan’s seasonally adjusted unemployment rate remained at 3.5% in line with expectations. Analysts expect unemployment to stay low, with the ratio of employment offers to job seekers increasing to 1.12 in November (October: 1.10) which means 112 vacancies were available for every 100 job seekers.

Real wages and household expenditure fall

Real earnings in Japan fell 4.3% in November - the most in real terms for almost five years. The 17th consecutive decline and the steepest fall since December 2009.Average family expenditure by households with two or more members also fell 2.5% from a year earlier in real terms during November. This is the 8th consecutive drop but actually beat market forecasts who were expecting a fall of 3.5%.

Industrial Production falls

Industrial production fell by a seasonally adjusted in November by 0.6% compared to October. This is the first fall in three months and largely attributed to the effect of big-ticket items such as equipment for making computer chips boosting October’s figures. This is much lower than market expectations of a 0.8% rise and is a decrease of 3.8% over the previous year. However, a manufacturers survey expects output to increase 3.2% in December and 5.7% in January. Economics Minister Akira Amari stated that the drop in November was likely to be temporary, given the sharp increase projected in the coming months.

Savings rate turns negative

Japan’s household savings rate fell to -1.3% in FY2013. This is the first time the ratio has been negative since 1955 – the period for which comparable data is available. Total household earnings, including salaries, interest payments and dividends, came to 285.5 trillion yen ($2.35 trillion) in the year ended March 2014, However, consumer spending was 289.2 trillion yen. As a result, household savings for the year was a negative 3.7 trillion yen. This has been attributed to the elderly tapping into their savings to cover spending and for the public to fund their pre-VAT spending. We will continue to monitor this given the potential impact on Japanese Government Bonds whose yield hit a record low of 0.31% on 26 December.

Comment

The inflation figures show how far the BoJ has to go to achieve its 2% inflation target. In a speech to the Keidanren(=CBI) last Thursday, Governor Kuroda continues to believe Japan is making ‘steady progress in shaking off its deflationary mindset’ and that it will remain around this level for the next few months before increasing, while the fall in energy prices will benefit both corporate profitability and inflation in the longer run.

The continuing squeeze in real wages is a concern with many believing that Japan’s economy recovery will not become sustainable until these start to rise. Both Governor Kuroda and PM Abe called for the Keidanren to encourage employers to raise wages next year and as previously reported, we already know that part of the stimulus package will be targeted at regions who have yet to feel the benefits of Abenomics.

Disclaimer

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