While the BOJ highlighted the pickup in Japan’s export industry, the latest figures from the domestic economy paints a completely different picture. Just how bad is the situation on the home front?
Economic data for January suggests that the worst isn’t over for Japan, as most readings came in the red. To start off, household spending marked a 5.1% annualized decline, worse than the projected 4.0% drop. Retail sales fell by 2.0% on a year-over-year basis, marking its seventh consecutive monthly decline. As I’ve mentioned in an earlier article on why the BOJ might need to ease again, this goes to show that Japanese consumers are still reeling from the impact of the sales tax hike in April last year.
To make things worse, the labor situation is also looking grim, as the unemployment rate jumped from 3.4% to 3.6%. Components of the jobs report even revealed that people are exiting the labor force and giving up on their job hunt, as the participation rate slumped from 59.3% to 59.0% in January. After all, the job-to-applicant ratio dipped from 1.15 to 1.10 that month, indicating that there are fewer opportunities available.
And that’s just the tip of the iceberg! Falling price levels could make matters more complicated, as weaker consumer inflation tends to lead to lower wages later on. For now, the Tokyo core CPI managed to hold steady at 2.2% as expected but the national core CPI chalked up its sixth monthly decline in a row, as it tumbled from 2.5% to 2.2% in January.
Minus the effect of the sales tax hike, Japan’s CPI stands at a meager 0.2% for the month, down from December’s 0.5% reading and miles below the central bank’s 2% target inflation. Didn’t Kuroda say that he’s confident that Japan will reach its inflation goals soon? Ha, I wonder when that’d be!
On a more upbeat note, industrial production data did confirm the BOJ’s positive assessment of external demand, as factory output showed an impressive 4.0% monthly gain. This was spurred mostly by a pickup in exports of electronic parts and automobiles to the U.S. and Asia, as these regions took advantage of cheaper price levels and a weaker yen.
A few analysts remarked that strong output growth and increased production could eventually translate to more job opportunities and higher salaries, which might then allow consumer spending to recover. Other economists such as Robert Medd, partner at GMT Research, believe that last year’s sales tax hike has done considerable damage to household spending and that this might continue to keep inflationary pressures in check.
Most BOJ policymakers and Japanese government officials still maintain that “Abenomics” will eventually kickstart a cycle of growth while warding off deflation. Bear in mind though that it has already been more than two years since aggressive economic reforms have been implemented and the results aren’t looking too good.
Could it be that Kuroda and his men are seeing something that others aren’t? Like maybe a blue and black dress instead of a gold and white one? Do you think the BOJ will need to admit defeat and dole out stimulus again at some point?