- Takeshi Minami, chief economist at Norinchukin Research Institute.
The recent fundamentals from the world's third largest economy showed uneven economic recovery, as the consumption tax increase in April continue to affect growth. Inflation rate in Japan remained unchanged in July after slowing a month earlier, underscoring challenge for Governor Haruhiko Kuroda in achieving the BoJ's goal. Nationwide core consumer price index rose 3.3% in July, in line with expectations, but when stripping off the effect of the April tax hike core inflation was at 1.3% in July, below the inflation target that the Bank of Japan promised to meet sometime next year. The nation's central bank has forecasted that consumer prices will advance about 1.25% for some time before accelerating to hit its 2% inflation goal. Any weakness in inflation following the slowdown in the economy last quarter, when GDP contracted an annualized 6.8%, may mount pressure on Kuroda to embark on more stimulus. In the meantime, another report showed that household spending fell 5.9% in July from the same period last year, much larger than the 3% drop forecasted by economists, and after plummeting 3% in June. Retail sales, however, showed a slight improvement, inching higher 0.5% year-on-year in July, above expectations for a 0.1% increase, and bouncing back from the 0.6% drop in June. Meanwhile, after a sharp 3.4% drop in June, industrial output edged up 0.2% in July. This was much smaller than the 1.2% forecast, prompting the government to keep its assessment that industrial output is trending on a "weak note."
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