"Contrary to the BOJ's view that output is rising as a trend, production is pretty sluggish. The economy won't see a clear pick-up for the rest of this year."
- Norinchukin Research Institute
According to preliminary data, industrial output in Japan declined 1.5% in August on a monthly basis; however, analysts expected the indicator to increase 0.2% after a 0.4% gain in July. Year-on-year, production dipped 2.9%, also missing experts' forecasts. Local companies are suffering from weak demand both at home and overseas, which makes their inventories bigger and forces to stop manufacturing process. Trade ministry of the country expected a long-awaited rebound after sluggish growth in recent months amid sales tax hike. Still, it predicts the production to add 6% this month, but to drop 0.2% in October.
At the same time, unemployment level in Japan slipped to the lowest level since June, reaching 3.5% in August. Therefore, economists hope the Japan's economy to be driven by consumer spending in the future, as it accounts for 60% of the whole economy. Data for August, however, showed continuation of the downtrend in households' spending, which plummeted 4.7% on a monthly basis, worse than a 3.5% decrease expected by analysts. Consumption is also estimated to drive inflation closer to its target of 2%, but there are still no confident signs that domestic spending levels are going to recover in the nearest future, posing some issues for the government, which is planning to raise the sales tax for the second time.
© Dukascopy Bank SA