BOJ may extend monetary boost
Print Edition
JAPANESE factories churned out more machinery and electronic devices in January as export shipments rose, but lower energy costs due to cheaper crude oil failed to provide a boost to consumer spending.
Weak retail sales and a cooling of already slow inflation underscored the fragility of the recovery of the world’s third-largest economy. It also raised the potential for further monetary stimulus from the central bank.
Core inflation, excluding volatile food prices, was 2.2 percent, compared with 2.5 percent the month before and the lowest in 10 months. Excluding energy costs and food, the consumer price index rose 2.1 percent, level with the previous two months.
The inflation rate is overstated by a 3 percentage point increase in the national sales tax, to 8 percent from 5 percent, last April. The tax hike snatched the wind from the sails of the recovery Prime Minister Shinzo Abe has sought to nurture by massive monetary and fiscal stimulus.
Excluding the effect from the sales tax, the inflation rate was only 0.2 percent, Bank of Japan Governor Haruhiko Kuroda said in a speech yesterday.
The central bank is pumping trillions of yen a month into the economy, seeking to vanquish deflation that discouraged investment and spending over the past two decades, aiming at an inflation rate of 2 percent.
Kuroda likened the 2 percent target to the velocity needed for a spaceship to escape the earth’s gravitational pull.
“Reaching orbit at an altitude of 1 percent ... is not enough,” he said. “This is because satellites at low altitude can be pulled back by gravity.”
But he said the BOJ would not adjust its policy based just on crude oil prices, which fell about 60 percent between December and January but have since recovered slightly.
The economy briefly fell back into recession after the sales tax hike but grew at a 2.2 percent annualized rate in October-December, helped by a surge in exports of machinery and electronics components, whose output rose in January.
Manufacturing output rose 4 percent from the month before, exceeding economists’ forecasts, but was 2.6 percent lower than a year earlier.
Unemployment rose to 3.6 percent in January from 3.4 percent the month before.
Sustained growth in industrial production will depend on both export and domestic demand, said Harumi Taguchi, an economist with HIS.
“Production growth has remained lower than industry’s outlook due to weaker-than-expected demand and inventory levels are still high relative to longer-term trends,” she wrote in a commentary.
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