March 29, 2024

In Wake of Japanese Market Dip, Investors Find Comfort in Higher Factory Output

Industrial production rose by a better-than-expected 1.7 percent in April from a month earlier, as exports started to recover on the back of a yen that has weakened by almost 20 percent in the last six months. But exports were still down 2.3 percent from the same month a year earlier.

Core consumer prices, which exclude fresh food, fell 0.4 percent in April from a year earlier, for the sixth straight month of declines, though the clip was slower than the 0.5 percent decline in the year to March.

Prices were supported partly by rising energy costs, as the weak yen added to Japan’s fuel import bills.

Consumer prices in Tokyo for the month of May rose 0.1 percent from a year earlier, the first increase in more than four years, a sign that nationwide prices could soon follow suit, ending the deflation that has long weighed on Japan’s economy.

Household spending cooled slightly after a strong showing in the first quarter, rising 1.5 percent in April from a year earlier in price-adjusted real terms. That uptick fell short of a median market forecast of 3.1 percent, though economists still expect spending to gain traction as consumer sentiment continues to improve.

The data offered a reprieve to recent market anxiety. A rally in the Japanese stock market, propelled by optimism over Prime Minister Shinzo Abe’s efforts to overhaul the long-suffering economy, has faltered in the last week as investors became nervous over the effectiveness of those efforts, as well as their potential side effects.

A 5.2 percent slide in Tokyo shares on Thursday took the Nikkei 225-share index to more than 13 percent below its peak last week. The sharp market correction followed a surge of more than 80 percent in the index from mid-November to mid-May, when trading suddenly turned volatile as investors took stock of the challenges that face Mr. Abe’s economic turnaround program.

Tokyo shares rebounded on Friday morning, with the Nikkei index jumping over 200 points, or 1.59 percent, in the opening minutes of trade.

Still, it remains unclear whether Mr. Abe’s agenda, nicknamed Abenomics, can bring about a goal, set by the Bank of Japan, to achieve 2 percent inflation over the next two years in a country where prices have fallen for over a decade.

To jolt Japan out of its deflationary slump, the central bank unleashed an audacious stimulus program last month, promising to inject $1.4 trillion into the economy to kick-start growth. In addition, the government bolstered spending on public works projects. The stimulus has also driven the yen to a 4 1/2-year low against the dollar, a boon to Japan’s exporters.

But many economists have called the two-year time frame ambitious. A recent Reuters poll of analysts suggested that the Bank of Japan might have to pursue its program for up to five years before it stokes enough inflation.

Some members of the Bank of Japan’s policy board are also skeptical of the two-year time frame, according to minutes released this week.

A spike in long-term interest rates, which poses high risks for Japan’s highly indebted government, has added to the worries.

Analysts and investors are also eager for progress on promised structural overhauls, which many see as crucial to the overall economy-lifting efforts of Mr. Abe’s government.

“The falling share prices point to the dangers that are inherent in Abenomics,” Ryutaro Kono, chief economist for Japan at BNP Paribas, said in a research note.

The program “at first triggered an asset bubble and brought about an economic euphoria,” Mr. Kono said. “But the endgame is a higher risk of financial ruin.”

Other analysts took a brighter view. “A lot of investors were sitting on the sidelines as the market soared, hoping for a pullback,” Nicholas Smith, Japan strategist at CLSA Asia-Pacific Markets, said in a note to clients Friday. “They now have that opportunity.”

Bettina Wassener contributed reporting from Hong Kong.

Article source: http://www.nytimes.com/2013/05/31/business/global/in-wake-of-market-dip-japanese-investors-find-comfort-in-higher-factory-output.html?partner=rss&emc=rss

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