Japan’s Production Declines, Jobless Rate Increases (Update1)
By Aki Ito and Keiko Ujikane
June 29 (Bloomberg) -- Japan’s industrial production and household spending slipped in May and the unemployment rate unexpectedly increased, in signs that the recovery of the world’s second-largest economy may slow.
The figures underscore Japan’s reliance on exports to propel its rebound, and follow calls by the U.S. for Japanese policy makers to stimulate domestic demand. For Prime Minister Naoto Kan, facing a mid-term election in less than two weeks, the figures may pose a warning that it’s too soon to tighten fiscal policy to shrink the nation’s debt.
“Today’s reports show Japan’s economy is clearly slowing down” after growing at an annual 5 percent pace in the first quarter, said Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo. “Consumer spending is weakening because the impact from government stimulus measures is fading.”
The jobless rate reached 5.2 percent in May, the third straight monthly increase and the highest level since December, the statistics bureau said in Tokyo. Household spending retreated 0.7 percent from May 2009, the office also said, a day after another report showed retail sales slowed last month. Factory output dropped 0.1 percent from April, the Trade Ministry said, compared with the median forecast in a Bloomberg News survey of 24 economists for a flat reading.
Japanese stocks dropped along with shares across the region after a report indicated China’s economic acceleration may have past its peak. The Nikkei 225 Stock Average lost 0.8 percent to 9,620.55 as of 1:28 p.m. in Tokyo. Asian equities dropped after the Conference Board corrected its April leading economic index for China to show the smallest gain since November.
Export Driver
Exports have been driving the nation’s recovery from its worst postwar recession, led by demand from Asia. Spending by Japanese households has relied on government incentives to purchase cars and electronic appliances, and been insufficient to rid the economy of deflation.
“Japan’s growth has yet to be sustained by domestic demand alone,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “The recovery will continue as long as exports keep growing.”
Companies accumulated stockpiles at the fastest pace in more than five years in May as shipments fell, the Trade Ministry said, indicating global demand may be cooling. Inventories rose 2 percent, the most since August 2004, and shipments slid 1.7 percent. Still, businesses plan to increase production by 0.4 percent in June and 1 percent in July, according to the report.
Tackling Deficits
The worldwide recovery may slow as governments worldwide begin to tackle their debt burdens. Group of 20 leaders meeting in Toronto last weekend endorsed targets to cut fiscal deficits even as they said the recovery remains “uneven and fragile.”
“The global economy is gradually heading toward an exit” from stimulus measures, Hiroshi Watanabe, a senior economist at the Daiwa Institute of Research in Tokyo, said before today’s reports. “With global growth moderating, Japan’s production is coming to a plateau.”
Economists had expected the jobless rate to fall to 5 percent from 5.1 percent, according to the median estimate of analysts surveyed. The gain was driven by young people who couldn’t find work, with the unemployment rate for 15-24 year- olds soaring to 10.5 percent, the highest level since June 2003.
The economy lost 240,000 workers in May from a month ago, bringing the seasonally adjusted number of those with work to a two-decade low. Sectors including manufacturing, research and education lost jobs, month-on-month breakdowns show.
Cost Cutting
“Businesses are trying to curb hiring to keep down their fixed costs,” said Maruyama at Itochu. “Instead, they’re trying to cope with a recovery of demand for labor by extending hours for workers already on the payroll.”
The export-led recovery is at least beginning to spur income for workers. Wages increased for a second month in April as employers had staff work more overtime.
A separate report today showed that the ratio of jobs to applicants rose to 0.50 in May, meaning there are 50 positions for every 100 candidates. The measure climbed to its highest level in more than a year.
Exporters such as Toshiba Corp. are still benefiting from overseas demand. Toshiba said last week that it will boost production of motors for hybrid cars and aim for annual auto- related sales of 700 billion yen by the year ending March 2016.
The Bank of Japan’s Tankan business survey on July 1 will show sentiment among large manufacturers climbing to a seven- quarter high, according to the median estimate of economists surveyed by Bloomberg. Companies will project their first spending increase in three years, the survey of analysts showed.
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