Japan Factory Output Jumps

Japan Factory Output Jumps

However the economy is mired in deflation.

TOKYO -- Japanese factories churned out a better-than-expected performance in April, but the upbeat data Friday was tempered as the export powerhouse is having issues with deflation.

Economists were combing through a string of data -- including factory output and inflation -- for signs an economy-boosting plan by Prime Minister Shinzo Abe and his hand-picked team at the Bank of Japan was taking hold.

The policy prescription of big government spending and aggressive central bank easing to stoke the world's third-largest economy, dubbed "Abenomics," has helped push the yen into a steep decline which benefits Japan's exporters.

Economy ministry figures which showed an April factory output rise of 1.7% over a month earlier.

Japan's April jobless rate was flat at a multi-year low of 4.1%.Huge infrastructure projects following Japan's quake-tsunami disaster two years ago were helping prop up demand for workers, Sato added.

A manufacturer survey on Friday showed Japanese producers remain cautious, expecting May factory output to be flat before slipping 1.4% in June.

"There has been a clear recovery in demand for labor in manufacturing likely on the back of stabilization in exports and thus industrial production," said Credit Agricole economist Yoshiro Sato.

Debt Concerns

On Friday the International Monetary Fund kept its 1.6% growth forecast for Japan's economy this year, giving Abe's plan a thumbs up. The economy expanded again in the first quarter, confirming its exit from recession. But the IMF also warned of "considerable downside risks" if Japan doesn't chop its massive national debt -- the worst among industrialized nations at more than twice the size of the economy.

Household spending was also weaker than expected while consumer prices fell 0.4% on-year in April, underscoring the tough task in reversing years of deflation that has crimped private spending and business investment.

A small 0.1% increase in Tokyo-area prices for May, the first in about four years, offered some hope amid reports that luxury brands including Chanel and Germany's Montblanc were set to raise their local prices by about 10% in response to the yen's drop against the dollar. Apple was reportedly boosting the price of iPads sold in Japan by as much as 20%.

Deflation is a key target of Abe's measures, as the Bank of Japan works to hit two-percent inflation within two years, but some observers -- including several BoJ board members -- have cast doubt on the ambitious target.

The BoJ's huge monetary easing measures -- similar to the U.S. Federal Reserve's bond-buying program, known as quantitative easing -- have driven down the yen, which traded around 101 against the dollar Friday, about 25% lower than late last year.

A weaker currency makes exporters more competitive overseas and inflates repatriated foreign income which, in turn, tends to lift their shares. But it also makes imports more expensive and has sent Japan's energy bills soaring as Tokyo turned to pricey fossil-fuel alternatives after shutting nuclear reactors following the Fukushima atomic crisis two years ago.

Yen weakness was partly to blame for Japan earlier this month posting its worst April trade deficit on record.

-Miwa Suzuki, AFP

Copyright Agence France-Presse, 2013

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