Japanese recovery still fragile with deflation on 17-month run
Published 28/08/2010 | 05:00
Japan's government released a mixed bag of economic indicators yesterday that did little to inspire confidence in the country's fragile recovery.
The unemployment rate in July improved for the first time since January, but families made less money. Deflation persisted as consumer prices fell for the 17th straight month.
Household spending rose, but the upswing may falter once government incentives for purchases of goods, such as energy-efficient household appliances, expire later this year.
The latest numbers underscore growing uncertainty for Japan's export-driven economy as it faces a surging yen and slowing global growth.
In the April-June quarter, Japan lost its place to China as the world's No 2 economy after posting annualised growth of just 0.4pc.
Prime Minister Naoto Kan is likely to unveil a new stimulus package, and growing political pressure is expected to prompt the central bank to ease monetary policy next month.
"In our view, concern looms large for consumption given a weak labour market and fading policy stimulus," said Goldman Sachs economist Chiwoong Lee in a note to clients.
The nation's seasonally adjusted unemployment rate improved to 5.2pc from 5.3pc in June, according to the Ministry of Internal Affairs and Communications. The result marked the first decline since January.
The number of jobless fell 7.8pc from a year earlier to 3.31 million, while the number of those with employment stayed flat at 62.71 million.
Meanwhile, the country's core consumer price index, which excludes fresh food, fell 1.1pc from a year earlier.
The government's new high school tuition breaks weighed heavily on the CPI, dragging education costs down 13pc. A strong yen also pushed down prices of imported goods.
Lower prices may boost individual purchasing power, but deflation is generally bad for an economy.
It plagued Japan during its "Lost Decade" in the '90s, hampering growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases. It also can increase debt burdens.