Tagged: Deflation worries

Japan factory output jumps, momentum in doubt

Reuters | TOKYO | Mon Dec 28, 2009 | 12:38pm IST

Japan’s industrial output rose for the ninth consecutive month in November, driven by strong exports and domestic subsidies, but swelling inventories and falling wages threaten to end the longest climb in more than 12 years. Demand from the United States and Asia contributed much to last month’s 2.6 percent rise, government data showed on Monday, supporting the Bank of Japan’s view that the world’s second-largest economy will continue its moderate recovery next year. Economists say overseas demand should prevent a return to recession next year. However, declining wages and weak labour market may outweigh the effect of government subsidies on energy efficient goods, forcing manufacturers to curb output and start selling down inventories built up in anticipation of better sales.

“The latest data shows that Japanese makers of automobiles and home electrical appliances are still hiking their output thanks to the continuing effect of government stimulus as well as strong exports to Asia,” said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. “But a slowdown is still expected early next year as the effect of stimulus will likely fade.” Japan’s wages fell for the 18th consecutive month in November from a year earlier, in a sign that deflation, or persistently falling prices and incomes, was entrenched. This exposes the central bank to more pressure from the government to ease monetary policy further.     Continue reading

Japan to cut spending plan may prompt BOJ response

Reuters | TOKYO | Thu Dec 24, 2009 | 4:33pm IST

Japan’s government is likely to cut spending plans pledged in its election campaign as it scrambles to keep next year’s budget under control, putting more burden on the central bank to avert a deflation-led downturn next year. Bank of Japan Governor Masaaki Shirakawa offered few clues on Thursday on his policy options, although he promised that the central bank would act promptly and decisively if financial markets were to become unstable. The government and the BOJ have clashed over how to deal with deflation, which the central bank forecasts will last at least three years, as policymakers fret it could drag down the economy just as it is emerging from the global financial crisis.

The BOJ buckled earlier this month, calling an emergency meeting to announce a new short-term funding facility and last week underlined its deflation-fighting credentials by declaring it would tolerate nothing but price growth. Now, with the government cutting its spending plans to appease worried investors and keep a ratings downgrade at bay, the onus may swing once again to the BOJ. “The BOJ will most likely face      Continue reading