Japanese factory output and retail sales gain

| February 26, 2010 | 0 Comments
Japanese factory output and retail sales gain

The recovery in the world’s second largest economy appears to be gathering strength after figures revealed a rise in industrial output and retail sales.

Official figures have today revealed retail sales rose last month for the first time since August 2008.

According to the Economics Ministry, retail sales were up 2.6% from a year earlier. However, the rise was not unexpected due to increases in fuel prices and gains in car sales boosted by tax incentives, according to Hideki Matsumura, senior economist at Japan Research Institute.

In the meantime, industrial output rose for the 11th consecutive month due to higher demand from China - the country’s largest export market, as well as rising demand elsewhere in Asia.

The 2.5% rise in output far exceeded analysts expectations of a 1.1% gain.

However, Japan’s consumer prices (excluding volatile fresh food prices) fell 1.3% in the year to the end of January - the 11th consecutive monthly fall, according to the Ministry of Communications.

The Japanese economy emerged from recession in the second quarter of last year but fears over its recovery have been raised through the continuous threat of deflation.

Last week, the Bank of Japan elected to keep interest rates on hold at the low level of 0.1%, as widely expected in order to beat deflation.

It is anticipated that the central Bank will leave rates at the low rate until around 2012 as a result of deflationary pressures.

A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.

Deflation was a problem for Japan during its so-called “Lost Decade” in the 1990s in which the economy struggled with falling prices.

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