Japan industrial output unexpectedly drops 2.3% as tax hike looms
Tokyo: Japan’s industrial production fell in February, undershooting all forecasts by economists surveyed by Bloomberg News, as the first sales-tax increase since 1997 risks stalling recovery in the world’s third-biggest economy.
Output fell 2.3% from the previous month, the steepest drop in eight
months, the trade ministry said in Tokyo on Monday. The median estimate
of 28 economists was for a 0.3% . A separate gauge of manufacturing
fell in March for a second straight month.
While the weakness partly reflected disruptions from
heavy snowfall, the data showed manufacturers are bracing for a slump in
demand following Tuesday’ s sales tax increase. Inventories fell for a
seventh straight month, lessening the likelihood of even sharper output
cuts as the higher consumption levy pushes the economy into a
one-quarter contraction in April-June.
“Companies are already cutting production and managing
their inventory well, so the fall-off in the second quarter should be
modest,” said Kiichi Murashima, chief economist at Citigroup Inc. in
Tokyo.
The 3 percentage-point increase in the sales tax is
forecast to cause the economy to shrink at an annualized 3.5% in the
second quarter, before a rebounding growth of 2.1% in the following
three months, according to a separate Bloomberg survey.
Prime Minister Shinzo Abe
gave the go-ahead for the sales tax increase to help deal with the
world’s biggest debt burden, even as he pushes reflationary policies to
spur growth and end 15 years of deflation.
Front-loaded budget
The yen was little changed in Tokyo, trading at 102.86
per dollar at 11:53am. The Topix index was up 0.6%, rising for a sixth
day after data last week showed household spending in the US rose in
February.
Finance minister Taro Aso
last week outlined plans to front-load spending in next fiscal year’s
budget to help the economy weather the blow from the higher levy. The
Bank of Japan (BoJ) has also signaled that it’s ready to boost record
easing if needed to drive inflation toward its 2% target.
A survey of manufacturers by the trade ministry pointed
to a sluggish rebound following Feburary’s decline. Companies plan to
boost production by 0.9% in March and cut it by 0.6% in April, the trade
ministry said.
History lessons
Japanese manufacturers appear to be in better shape now
than in 1997 when the last sales-tax increase precipitated a tumble in
production that later developed into a recession.
“Companies are making long-term demand projections and
keeping production and inventory under control before the higher levy
takes effect,” Yasushi Ishizuka, director of economic analysis office at
the trade ministry’s research and statistics department, said after the
release.
“They’ve told us they’ve learned their lesson,” Ishizuka
said. “The projections are limited to a smaller decline compared to the
drop in production when the sales tax was last increased.”
The seasonally adjusted index of inventories was at 103.8
in February, compared with 124.1 in March 1997, METI data show. Output
fell 2.6% in April 1997.
A purchasing managers’ index (PMI) showed slowing
expansion in the manufacturing sector in March, with the gauge compiled
by Markit Economics and Japan Materials Management Association falling
to 53.9 in March from 55.5 in February. A reading above 50 indicates
expansion.
The BoJ is under pressure from the markets and
politicians to ease further, said Masamichi Adachi, a senior economist
at JPMorgan Chase and Co. in Tokyo.
Production forecasts of economists polled by Bloomberg ranged from an increase of 1.2% to a decline of 1.5% in February.
Heavy snowfall
At least 20 centimeters of snow fell in Tokyo on 14 and
15 February, with accumulations 10 times higher in some other parts of
the nation. The previous weekend brought the heaviest snowfall in Tokyo
in 45 years, public broadcaster NHK reported.
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