Japan’s unemployment unexpectedly rose for a fourth straight month and industrial production fell the most in more than a year, signaling the economic expansion is poised to slow.
The jobless rate climbed to a seven-month high of 5.3 percent in June, a statistics bureau report showed today in Tokyo. Factory output slid 1.5 percent from May, compared with the median forecast in a Bloomberg News survey of economists for a 0.2 percent gain. Meantime, consumer prices excluding fresh food declined 1 percent from a year before.
Today’s data may make it tougher for Prime Minister Naoto Kan to build support for his plans to rein in the government’s budget deficit as parliament gathers for the first session since he took office. The Bank of Japan may also come under increased pressure to step up monetary stimulus as a rising yen threatens to contribute to deflation.
“We have to start worry about a slowdown,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “Kan will be forced to shelve pursuit of fiscal consolidation and the Bank of Japan will also come under more pressure to take additional monetary policy action.”
The yen climbed and stocks fell as today’s figures signaled a diminishing investor appetite for risk. The Nikkei 225 Stock Average dropped 1.5 percent to 9,550.18 at the morning close in Tokyo. The yen strengthened to 86.36 per dollar, after reaching 86.25, the highest level since Dec. 1.
Earnings Evidence
The slump in Japan’s production is a contrast with reports from several of the nation’s companies that indicated an improved outlook. Sony Corp. and Panasonic Corp., the world’s largest consumer-electronics makers, signaled Japanese technology companies are withstanding slowing European demand and the stronger yen after raising their earnings forecasts. Fujitsu Corp. also raised its profit projections.
Household spending rose 0.5 percent in June from a year before, snapping a two-month decline, a separate report showed today. The increase in the jobless rate last month came in part as the number of people out of the labor force declined, indicating more people are starting to look for work.
“We should brace for the economy falling into a soft patch toward the first quarter of next year,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “Kan will have to tread a very delicate line in handling economic policies and fiscal consolidation.”
Pressure on Kan
A group of ruling-party lawmakers said today they will press Kan to shift his focus to growth from fiscal restraint and urge the central bank to do more to tackle deflation. Their proposals include pushing the Bank of Japan to buy long-term government bonds and target inflation of 2 percent to 3 percent.
Economy Minister Satoshi Arai told reporters after today’s reports that the economy is “gradually recovering” and deflation is easing “little by little.” The central bank and the government are working together to overcome falling prices, he added, declining to comment on an inflation target.
Japan’s expansion slowed to an annual 1.9 percent pace in the second quarter from the first quarter’s 5 percent, according to the median estimate of economists surveyed by Bloomberg News.
A separate report today indicated job prospects are improving. The job-to-applicant ratio rose to 0.52 in June, meaning there are 52 job openings for every 100 candidates, the most since March 2009.
Carmakers Cut Back
Automakers and electronics manufacturers led the drop in production, which was the steepest since February 2009, as demand from abroad weakened. Exports grew at the slowest pace this year in June, a report showed this week.
Manufacturers surveyed by the Trade Ministry plan to cut output by 0.2 percent in July and increase it by 2 percent in August. The ministry kept its view that production is rebounding, while adding that it is “pausing in some areas.” Output rose 1.4 percent in the three months to June, the slowest gain since it fell in the first quarter of 2009.
The planned expiry of government incentives to purchase cars may weigh on manufacturing just as growth in China and the U.S. slows. Trade Minister Masayuki Naoshima said today that the government will let the initiative end in September as scheduled, Kyodo News reported. Japan’s biggest carmakers are already preparing to scale back as a result.
“Production will slow because exports are losing steam,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Japan will probably go into an economic lull next year, although it may avoid a double-dip recession.”
To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Mayumi Otsuma in Tokyo at motsuma@bloomberg.net