Japan's deflation persists in April, industrial output falls despite month-on-month gains

TOKYO – Japan’s core consumer price index fell 0.4 per cent in April from a year earlier, while industrial production also weakened, the government reported Friday.

The data offer scant evidence of a rebound, though officials say the economy is on the cusp of a recovery and should show stronger gains by midyear.

Industrial production fell 2.3 per cent from a year earlier though it was up a seasonally adjusted 1.7 per cent from the month before. The strongest gains were in autos and other transport equipment and in electronic components and devices, according to the Ministry of Economy, Industry and Trade.

Despite recent turmoil in financial markets, Prime Minister Shinzo Abe has vowed to persist in aggressive monetary easing and stimulus spending aimed at helping Japan break out of deflation, or falling prices, that has contributed to two decades of economic stagnation.

“No action, no growth,” he declared to a group of economic experts gathered this week in Tokyo to assess his “Abenomics” policies.

Japan’s benchmark Nikkei 225 stock index was trading 2.1 per cent higher early Friday after tumbling 5.2 per cent the day before, as investors responded to retreats in other major markets.

Abe characterized recent market gyrations as “routine financial phenomena.”

“We must not allow ourselves to be distracted and intimidated by the crisis conditions we face,” said economy minister Akira Amari.

Though the Nikkei remains around 30 per cent higher for the year, boosted by optimism over the Bank of Japan’s unprecedented monetary easing, it’s down 13 per cent from its peak on May 22, reflecting doubt over whether the government’s economic strategy can extricate the country from years of economic malaise.

The prospect of more yen in circulation, which is intended to boost inflation, has weighed on the currency. The yen has fallen sharply to the relief of the country’s exporters and that weakening is pushing up prices, in yen terms, for imported crude oil and other commodities. That is expected to help the central bank eventually reach its target of 2 per cent inflation within the next two years.

But apart from a 4.2 per cent increase in utilities costs, many other prices remained lower in April, the Management and Coordination Agency reported. It said the overall CPI, including food and energy prices, fell 0.7 per cent from a year earlier as costs for vegetables, education and entertainment, fell, but rose 0.3 per cent from the month before. Core inflation, excluding food prices, also rose 0.3 per cent from a year earlier.

Japan’s unemployment rate remained flat, at 4.1 per cent, despite the government’s insistence that Abe’s policies are improving labour and wage conditions.

Without a strong improvement in incomes, which have been declining, any recovery in the consumer spending needed to help boost demand and sustain the recovery will be short-lived, economists say.

“Wage increases need to be realized in the labour market,” said Kenji Umetani of the Cabinet’s Economic and Social Research Institute. “This increase will be realized only if the expectation of future income growth is strengthened and holds.”