Updated: 08/29/2014 16:42 | By Agence France-Presse

Weak Japan data heap pressure on policymakers

Japan's economy slowed markedly last month as consumer spending dropped and factory output ran out of steam, data showed Friday, underscoring concerns about the state of the country's recovery.


Weak Japan data heap pressure on policymakers

Visitors at an observatory floor look towards the skyline of Tokyo's commercial district of Shinjuku, August 13, 2014 - by Kazuhiro Nogi

The weak figures come after Japan suffered its biggest quarterly contraction since the 2011 quake-tsunami disaster, as an April sales tax rise slammed the brakes on growth in the world's number three economy.

While deflation remained at bay, consumer price growth stalled in July, and the fresh figures were sure to heap pressure on the Bank of Japan to usher in another round of monetary easing to kickstart growth, analysts said.

The recent data will also force Prime Minister Shinzo Abe's administration to take a hard look at whether to raise sales taxes again, after the April 1 hike -- seen as crucial to shrinking Japan's mammoth debt -- dented growth.

Abe launched a high-profile growth blitz last year, dubbed Abenomics, in a bid to kickstart an economy beset by years of deflation and slack growth.

"Today's data on industrial production and retail sales show that the economy continued to stagnate at the start of the third quarter," Marcel Thieliant from Capital Economics said in a note.

"What's more, inflation moderated in July and is set to decline further, which should increase the pressure on policymakers to do more."

The latest data showed Japan's industrial production inched up a tepid 0.2 percent in July on-month after tumbling 3.4 percent in June.

While the fresh reading was a modest rebound, it was well below market expectations for a 1.2 percent rise in factory output.

- Consumers cut back spending -

Spending among the nation's households dropped 5.9 percent from a year earlier -- falling for the fourth month in a row -- while the unemployment rate inched up again to 3.8 percent in July, after hitting a more than 15-year-low of 3.5 percent in May.

Japan's labour market had been showing signs of tightening, with rising demand for workers expected to push up wages and spur spending.

But a key jobs market index known as the jobs-to-applicant ratio was unchanged last month, suggesting that the trend was weakening.

"This marked the first time since the launch of Abenomics that the index hasn't improved," Thieliant said.

"The recovery of the labour market may soon have run its course," he added.

Tepid wage growth and consumers facing higher prices dug into spending nationwide, after millions of shoppers had made a last-minute dash to stores before sales taxes rose to 8.0 percent from 5.0 percent.

"Reaction to the April tax hike is receding, but the impact of decline in income will likely continue for a while," said Taro Saito, senior economist at NLI Research Institute in Tokyo.

"The Bank of Japan may have to announce additional easing measures by the end of this fiscal year (through March 2015)," he added.

The central bank last year unleashed a massive monetary easing plan as a cornerstone of Tokyo's growth efforts, with the BoJ setting a 2.0 percent inflation target by next year.

The move marked an all-out war on deflation, but economists have widely cast doubt on the bank's ambitious timeline.

The data Friday showed consumer inflation rose 3.3 percent in July from a year earlier, unchanged from the previous month, while core prices -- excluding the impact of the tax rise -- came in at 1.3 percent, Dow Jones Newswires said, quoting a BoJ formula.

Other factors that helped boost inflation include higher gasoline prices and electricity bills, reflecting Japan's post-Fukushima energy mix following the shutdown of its nuclear reactors.

The country was forced to turn to expensive fossil fuel imports to plug the gap left by turning off nuclear power in the wake of the 2011 atomic accident, which resulted in a ballooning trade deficit. 

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