Japan: possible indicators of downside risks
Published 1 September 2014
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This article is no longer current. Please refer to Overseas Business Risk – Japan
Detail
Household expenditure: Declines for four months in a row
The July figures released by the Ministry of Internal Affairs and Communications (MIC) in late August showed household expenditure fell by 5.9%, compared to a year ago (YOY). Households tended to spend much less on dining-out and leisure services, suggesting they focused more on necessities.
The Ministry of Economy, Trade and Industry (METI) separately released the July Retail sales (goods) figures. These showed a moderate increase (0.5% YoY) and represented the first increase since the VAT rise. Nonetheless, sales of big-ticket items such as cars, machinery and electronics remained low.
Inflation: 14 months in a row
The July CPI figures released by MIC showed core CPI inflation (excluding fresh food) rose by 3.3% YOY, (2% of which is due to April’s VAT rise). Preliminary August core CPI data for the Tokyo region, a leading indicator for nationwide CPI, was 2.7% - unchanged from July.
Unemployment edges up to 3.8%
July unemployment rate slightly rose to 3.8% from June’s 3.7%. This was the second consecutive monthly rise, though very moderate. The number of unemployed rose mainly because more women, mainly housewives, registered as available to work. The female labour participation rate was up 1.3 points to 63.6% (male’s up 0.4 point to 81.3%); and the female unemployment rate worsened to 3.7% from 3.5% (male unchanged at 3.8%). Total employment demand remained strong: 460,000 gain YOY to 63.57 million in the month, mainly due to low paid non-regular positions.
Industrial production: Slight increase but less than expected
July industrial production rose 0.2% compared to previous month (MOM), rebounding slightly from a sharp fall in June (-3.4% MOM). This was weaker than the 1.0% estimated by analysts. Low demand and subsequent accumulated inventories, particularly for durable consumer goods such as cars and electronics, appear to have discouraged large increases in production.
Government: Decline in consumption mainly due to bad weather
Following the release of this economic data, Economic Minister Amari said ‘we do not need to be so pessimistic (for consumption)’ and observed that July’s bad weather may have had a contributing role to suppressed demand. Finance Minister Aso echoed this, noting that the negative impact of the VAT increase on consumption was easing.
Comment
July marks a whole year with real incomes falling behind inflation, (-3.2% YOY in June) which seems the main reason for the weakness in private consumption.
These figures also represent the fourth consecutive monthly drop in overall consumption since the April VAT increase (5% to 8%).
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