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The key to the growth plan is the central bank’s monetary easing policy and its bid to hit 2% inflation.
The key to the growth plan is the central bank’s monetary easing policy and its bid to hit 2% inflation.

Japan Inflation, Output Rise

Japan has been struggling to reverse a years-long deflationary spiral of falling prices and lackluster growth

Japan Inflation, Output Rise

Japanese inflation and factory output picked up in February while the unemployment rate dipped to a two-decade low, official data showed, a rare string of upbeat news for the world’s No. 3 economy.
But the positive figures were tempered by still-weak household spending and little evidence that a tight labor market was leading to pay rises and driving up prices, AFP reported.
Japan’s core consumer prices, excluding volatile fresh food, rose 0.2% from a year earlier, driven by a rise in energy prices, according to the government data.
The latest inflation rate is still a long way off the Bank of Japan’s 2% target, but it marked the second consecutive on-year rise after a pick-up in January ended a long string of declines.
Meanwhile, February industrial production expanded by a stronger-than-expected 2% and the jobless rate fell to 2.8% from 3% the previous month, the lowest level since the mid-90s.
The figures are good news for an economy that has been struggling to mount a firm recovery and put years of deflation in the rear view mirror.
Household spending remained weak, falling worse-than-expected 3.8% from a year ago. That marked 12 months of decline, although the February fall was exacerbated by 2016 being a leap year—meaning there was an extra day’s spending to be accounted for.
“Overall, I had a good impression” of the data, said Taro Saito, senior economist at NLI Research Institute in Tokyo. “Because last year was a leap year, household spending looks worse than it really is. Excluding that factor, it was actually up in February,” Saito added.
Labor Market
While Japan’s job market is tight, individual spending—which accounts for more than half of the country’ gross domestic product—had remained in the deep freeze. And with cash-rich firms not splashing out on big pay rises, analysts are doubtful about a big pick up in spending anytime soon.
“Japan’s economy continued to record solid growth in the first quarter,” Marcel Thieliant at research house Capital Economics said in a commentary. “However, there is still no evidence that the tighter labor market is fueling price pressures.”
Japan has been struggling to reverse a years-long deflationary spiral of falling prices and lackluster growth.
Prime Minister Shinzo Abe swept to power in late 2012 on the pledge to cement a lasting recovery with a growth plan dubbed Abenomics.
The scheme—a mix of aggressive monetary easing and huge government spending along with reforms to the economy—stoked a stock market rally and fattened corporate profits, but the effect on the wider economy has been less dramatic.
The key to the growth plan is the central bank’s monetary easing policy and its bid to hit 2% inflation. The timeline has been repeatedly pushed back and the BoJ now expects to reach its price goal by March 2019—four years later than planned.
US Upset
The office of the United States trade representative has criticized the existence of “significant foreign trade barriers” to US exports in Japanese markets—including automobiles and agricultural products—in its annual report on foreign trade barriers.
The United States could call on Japan to deregulate automobile sales and expand agricultural product imports, such as through the Japan-US economic dialogue that will start mid-April.
The 2017 National Trade Estimate Report on Foreign Trade Barriers, released Friday, pointed out that “Japan’s highly regulated and nontransparent importation and distribution system for imported rice limits the ability of US exporters to meaningfully access Japan’s customers.”
The report also mentioned that Japan “maintains high tariffs that hinder US exports” of agricultural and other food products, including sugar and citrus fruits, to protect Japan’s domestic agricultural producers.
The report said “a variety of nontariff barriers impede access to Japan’s automotive market, and overall sales of US-made vehicles and automotive parts in Japan remain low.”

 

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