Japan’s factory output up, job market improves on positive economic outlook

Japan's core consumer inflation increased at the fastest pace in over five years in December with the job market also looking up, in signs that came as encouraging for the Bank of Japan (BoJ) as it sought to counter deflation with aggressive money printing.

Factory output too was up in December and manufacturers expect the trend to continue although some analysts remain concerned about the potential damage from the recent turmoil in emerging markets.

The data points to an economy that continued to gain momentum on strong domestic demand, according to analysts. However, BoJ governor Haruhiko Kuroda cautioned about export demand with many of Japan's Asian trading partners remaining weak.

Reuters quoted Junko Nihsioka, chief economist at RBS Securities, as saying, the core consumer price index was stronger than expected, and durable goods prices seemed to be rebounding. He added, consumer prices were likely to show continued moderate growth.

He added the BoJ was unlikely to adopt additional easing as there was no reason to justify it given the positive macro-economic environment.

Core consumer prices (CPI), which excluded fresh food but included energy costs, was up 1.3 per cent in December from a year ago, data showed yesterday, just above a median market forecast for a 1.2 per cent gain.

A massive injection of cash from central bank asset purchases and other government spending had underpinned demand, helping to boost growth amid a weakening in Japan's trade balance, according to Associated Press.

A tax hike set to come into effect on 1 April is expected to adversely affect growth in coming months, however, as consumers tightened their belts to compensate, according to AP.

According to commentators, the increase in prices mostly came from increasing costs for imports of food and costly crude oil and natural gas. Excluding those factors, prices were up 0.2 per cent in 2013 and the core consumer price index, excluding just fresh food, increased 1.3 per cent in December.

The data released Friday showed factory output increased a seasonally adjusted 1.1 per cent in December from the month before. According to the ministry of economy, trade and industry, the annual increase was 7.3 per cent.

The jobless rate was down to 3.7 per cent, its lowest level in six years.

Prime  minister Shinzo Abe who completed a year in office is facing pressure to deliver on promised economic and administrative reforms for helping to sustain recovery.

According to commentators, getting companies to raise wages to help offset the blow to demand from rising prices and taxes would be critical to the success of his strategy for economic revival following over two decades of stagnation.