TOKYO: Japan could be flirting with recession after the weakest factory output since 2011, which, following a surprising fall in exports last week, could pressure the central bank to ease policy and complicate a decision on whether to raise taxes. The severe contraction in output and pileup of inventories after an April increase in the national sales tax are much worse than after the previous tax hike in 1997, which ushered in a steep recession, government data showed yesterday.
Two months of unexpected export declines from the world’s third biggest economy, meanwhile, are calling into question the Bank of Japan’s case that shipments overseas would by now be taking up the slack from the tax hike’s blow to consumption.
The sputtering recovery is a far cry from Prime Minister Shinzo Abe’s early success in lifting growth and halting deflation through aggressive monetary stimulus and government spending. “We may not have a recession, but you cannot say that the economy is on track,” said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting Co.
“The government will become more reluctant to raise taxes,” he said of an end-year decision on whether to proceed with a planned further sales-tax increase.
“The BOJ can argue that inflation is still on track, but this argument may not last into next year.”
Industrial production sank 3.3 percent in June from May, the data showed, the fastest fall since the earthquake and tsunami of March 2011, and much deeper than the 1.2 percent fall forecast in a poll. The fifth consecutive drop in shipments is reminiscent of Japan’s last recession, said an official at the Ministry of Economy, Trade and Industry. “Output is clearly weakening, enough to make you even wonder if the economy is OK,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
REUTERS
