TOKYO (AFP) – Japan’s factory output saw a surprise drop and household spending kept falling in August, data showed Tuesday, fanning fears about the impact of April’s sales tax rise on the economy.
The figures will add to worries that the country’s tentative recovery has been knocked off kilter by the increased levy and strengthen the hand of those arguing against another hike next year.
Industrial production shrank 1.5 per cent month-on-month in August after rising 0.4 per cent in July, the ministry of economy, trade and industry said.
The latest reading also missed a market median forecast of a 0.3 per cent rise.
Separate data from the internal affairs ministry showed household spending in August fell a steeper-than-expected 4.7 per cent from a year earlier.
Spending has now fallen for five straight months since the government raised the sales tax from 5.0 per cent to 8.0 per cent.
The latest fall was sharper than the market forecast of a 3.6 per cent drop and came after a 5.9 per cent plunge in July.
Yet more weak data is likely to force policymakers to take a hard look at the state of the economy. The government and central bank leaders have argued the world’s third largest economy remains broadly on a recovery path and has withstood a temporary shock from the tax rise.
But that position is getting harder to defend, say observers.
“There is no sign at all of a V-shaped economic recovery previously forecast by the government,” said Norinchukin Research Institute chief economist Takeshi Minami.
Demand for durable goods remains weak, compounded by a buying spree ahead of the tax hike, and “as far as demand for services and non-durable items is concerned, people are keeping a tight grip on their wallets because of a continued decline in real wages”, he told Dow Jones Newswires.