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Asia Economy Last Updated: Dec 30, 2013 - 10:50 AM

Japan's Nikkei 225 in biggest annual rise since 1972; Manufacturing in December rises at sharpest rate since 2006
By Finfacts Team
Dec 30, 2013 - 10:46 AM

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The Nikkei 225 rose for a ninth consecutive session Monday to close 0.7% higher on its final trading day of the year, bringing its full-year rise to 57%, the highest since 1972. Meanwhile, manufacturing sector output in December rose at the sharpest rate since 2006.

The Nikkei Stock Average ended up 112.37 points, from Friday at 16,291.31, its highest close since Nov. 2, 2007. It was the index's ninth consecutive day of gains, its longest rally since July 2009.

Japan's seasonally adjusted industrial production rose 0.1% in November compared to the previous month, the ministry of economy, trade and industry said in Friday's preliminary reading - - rising for the third straight month while Japan's core consumer prices climbed 1.2% in November from a year earlier, accelerating to a new five-year high, government data has shown, marking steady progress towards beating 15 years of deflation.

Reuters reported that the rise in the core consumer price index, which includes oil products but excludes volatile prices of fresh food, compared with a 1.1% increase expected by economists in a poll. That marked the fastest growth since 1.9% seen in October 2008, data from the ministry of internal affairs and communications showed.

The core-core inflation index, which excludes food and energy prices and is similar to the core index used in the US, rose 0.6% in the year to November, a second straight month of gains and the biggest increase since a 0.7% increase in August 1998.

Data on cash earnings show a rise 0.5% in November from a year earlier, breaking four months of decline, government data showed last week. Wages excluding bonuses and overtime were unchanged, ending a 17th-month slide.

Wages need to rise in real terms to win the war against deflation.

December saw business conditions at Japanese manufacturers improve at the sharpest pace since July 2006. The rates of output and new business growth eased slightly from November, but nevertheless both remained sharp. Reflecting the recent strength of production and new order growth, employment expanded at the sharpest rate since June 2007. Meanwhile, output prices rose at the sharpest pace since November 2008. Input cost inflation followed a similar pattern in December, accelerating to a 33-month high.

The headline seasonally adjusted Markit/JMMA Purchasing Managers’ Index (PMI) - - a composite indicator designed to provide a single figure snapshot of the performance of the manufacturing economy - - posted at 55.2 in December, up from 55.1 in November. This signalled that operating conditions in the Japanese manufacturing sector improved at the sharpest pace since July 2006. Moreover, this continued the longest sequence of growth in over three years, as the PMI posted above the 50.0 no-change mark for the tenth consecutive month.

Both production and new order growth eased in December, though their respective rates of expansion remained well above trend. Output increased for the tenth successive month, though the rate of growth fell from November’s four-year high. New orders also grew sharply and continued a ten-month sequence of expansion. A strengthening of domestic demand and public projects were cited by panellists as key drivers behind the latest rise in new business.

New export orders rose for the fourth successive month in December, though the rate of expansion eased from November’s 42-month high. Panellists attributed the latest growth to an increase in export demand, particularly from Myanmar, Thailand and North America.

December marked the fifth successive increase in backlogs of work, as outstanding business expanded at the sharpest pace since April 2006. Reflective of this was the latest increase in employment, which rose at the sharpest pace in six-and-a-half years in December. Anecdotal evidence indicated that the latest recruitment was in part the result of sales initiatives and higher levels of incoming orders.

Meanwhile, December saw output prices rise at the sharpest pace since November 2008. A number of panellists attributed this to passing higher costs of raw materials on to customers. Input costs also rose sharply in December, and the pace of price inflation hit a 33-month high. Respondents commonly cited foreign exchange movements as a contributory factor, as well as increases in raw materials and staffing costs.

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