Industrial output in Japan grew 1.1 percent in December and January may see sharpest expansion in eight years, reports Team IFM.
Tokyo, January 31: Japan’s industrial production in December grew 1.1 percent from the previous month, an increase for the first time in two months, official data released on Friday showed even as the government said output would surge further in January on the back of swelling order books.
Alongside, an economic health tracker felt business outlook for manufacturers improved at the fastest pace in nearly eight years this month, and analysts traced the roots of the upsurge to a scheduled sales tax hike and, ironically, the country’s senior citizens.
The announcement comes as a relief a day after Japan’s benchmark stock index Nikkei 225, the worst regional performer this year, took the biggest hit to fall 3.3 percent after the US Federal Reserve Bank said on Thursday it would cut back monthly stimulus by $10 billion.
Much of the stimulus that goes into the American economy finds its way into emerging markets serviced by Japanese exporters. An independent study said the latest data reflected the loss in export momentum in the month under review.
For Japanese manufacturers propped up by a strong domestic demand, it’s a different story however. “Maintaining the growth momentum seen in the final quarter of 2013, operating conditions at Japanese manufacturers improved at the sharpest rate in nearly eight years in January,” said Claudia Tillbrooke, economist at economy tracker Markit.
Robust Show
The immediate future for Japanese manufacturers looks rosy – new orders rose for the eleventh consecutive month in January, registering the sharpest pace since February 2006. The consequent spurt in production, which was 1.1 percent in December over that of the previous month, was also an increase of 7.3 percent over that of the previous year.
Meti –Japan’s Ministry of Economy, Trade and Industry – further said that while production and shipments-inventory ratio increased last month, inventories decreased. “Industrial production continues to show an upward movement,” it said.
The ministry said the industries that mainly contributed to the increase were machinery (for general purpose, production and business-oriented units), fabricated metals, and electronic parts and devices.
The specific items that have led the commodities surge were active matrix LCDs or liquid crystal devices, both middle and small; numerically controlled robots, and power transformers.
And going forward, things are getting better, Meti indicated. According to the ministry’s Survey of Production Forecast in Manufacturing, production is expected to increase 6.1 percent in January and increase 0.3 percent the following month.
Markit acknowledged this in a joint statement with the Japan Materials Management Association (JMMA) on Friday. “Business conditions at Japanese manufacturers improved at the sharpest pace in nearly eight years in January,” it said. “Record highs in the growth of production and quantity of purchases reflected the sharp expansions seen in new orders over the past few months.”
The Japan Manufacturing Purchase Managers Index (PMI), the composite manufacturing indicator of Markit-JMMA, rose to a seasonally adjusted 56.6 in January from 55.2 in December. According to the economy tracker, this was the highest reading posted by the PMI since February 2006, “signalling a sharp improvement in operating conditions” in the Japanese manufacturing sector.
It also noted that backlogs of work rose for a sixth consecutive month in January. Alongside, so did employment rate. The pace of job growth eased fractionally from December, but remained solid nonetheless, it said, citing new product launches, manpower shortages and increased production were commonly cited as key drivers behind the latest recruitments.
According to it, whilst the rate of job growth eased from December, the latest increase nevertheless marked the longest sequence of expansion since a 23-month run ended in December 2006. “The continued expansion of employment, suggests a degree of confidence in the longevity of the current upturn,” said Claudia Tillbrooke, economist at Markit.
Exporters Hit
In contrast, the latest data indicated, when it came to securing new export orders, the momentum was lost.
The data indicated that the recent growth momentum registered in new export orders was lost in January, as the pace of expansion eased to the weakest in the current five-month sequence of growth.
The PMI for new export orders fell to 52.8 in January from 55.7 in the previous month.
Sales Tax Push
Tillbrooke, who authored Markit’s “Japanese Manufacturing PMI Survey” data, said “evidence suggested that the upcoming rise in sales tax was a key factor driving the recent expansion, as customers order early to avoid the higher tariff.”
The government has announced that it will raise sales tax from 5 per cent to 8 per cent in April to pay for rising welfare costs for the elderly.
About a fourth of Japan, or 31.86 million people, was over 65 years old, according to a demographic estimate released in September by the government-owned National Institute of Population and Social Security Research. This was up 1.12 million over a year-ago period.
What is hurting the state exchequer is the increasing welfare payout as the number of people retiring swell.
Not everyone believes the move will work. “There is no real progress on containing welfare spending, so even if you raise the sales tax, the country’s finances won’t improve,” Reuters quoted Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting, as saying.
“We know what needs to be done. But the government is pushing back important decisions.”