Japanese manufacturing firms saw a decline in
output for the second month running in May alongside a continued fall in new
orders and new export orders according to the latest PMI (purchasing managers'
index) survey. On Friday, Japan's official industrial production data showed a
fall in factory output by 2.5% in April from a month earlier after a weak 0.7%
rise in March. Meanwhile consumer inflation in the deflation stricken economy
hit a 23-year high in April but real wages are expected to fall this year.
Consumer prices rose 3.2% in April compared with the same period last year but
there is no certainty yet that deflation has been beaten.
The government raised its sales tax rate from 5% to 8% on 1 April and spending
had been brought forward to beat the hike and as a result data released on
Friday showed that household spending dropped 4.6% in April, compared to a year
There was a 4.4% dip in retail sales during the month following an 11% surge in
"Consumer spending has declined as expected in
April, but this is likely to be minor blip and will not affect the ongoing
recovery," Martin Schulz, of Fujitsu Research Institute told the BBC.
"Both consumer spending and retail sales will start rising in the latter half of
But Schulz added the government needs to introduce reforms in key sectors of the
economy for the recovery to sustain in the long run.
Japan Macro Advisors
a commentary last week: "Japanese household will be suffering
severe decline in real income this year. We expect wage growth in 2014 to be
1.2%, well below the CPI inflation of 2.7%. Situations are even worse for
pensioners who now account for 25% of the whole population. From April 2014,
public pensions were cut by 0.7%. Stagnating stock market will also not help
Japanese pensioners. Policy makers tend to maintain that consumption would
recover from summer. We think such assumption are overly optimistic."
In March big companies such as Toyota in the
annual pay round raised monthly wages by the equivalent of the cost of a few
cups of Starbucks coffee - - without a rise in pay and
consequent spending, deflation will continue.
Markit today said rates of decline for both
new manufacturing orders and output eased from those seen in April. Employment
numbers grew in May for the tenth month running, albeit at a slower pace.
The headline seasonally adjusted Markit/JMMA PM - - a
composite indicator designed to provide a single-figure snapshot of the
performance of the manufacturing economy - - posted at 49.9 in May, up from 49.4
in April. This signalled a broad stabilisation in business conditions in the
sector, following the decline in April.
Output fell for the second month running in May. Similar
to April, panellists commented on a decline in demand due to the sales tax
increase. That said, the deterioration in output eased in comparison to the
previous month. Following a similar trend, new orders continued to fall with
panellists again blaming the sales tax rise. However, the decline in new orders
was only slight and weaker than in the previous month, with the seasonally
adjusted New Orders Index moving closer to the 50.0 no-change mark.