industrial output rises, signals economic recovery
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[June 30, 2014]
By Tetsushi Kajimoto
TOKYO (Reuters) - Japan's
factory output rose in May after companies cut
production in April to offset the impact of a national
sales tax hike, underscoring views the economy will
absorb the increase largely unscathed.
The 0.5 percent month-on-month rise compared with the median
estimate of a 0.9 percent increase in a Reuters poll of economists,
and followed a 2.8 percent drop in April, data from the Ministry of
Economy, Trade and Industry showed On Monday.
The data is likely to support a view that the economy will rebound
in the summer from the April 1 sales tax rise and spending slump in
the current quarter.
That rebound could further dampen expectations the Bank of Japan
will ease policy again this year, as it is likely to support the
bank's optimistic view of an economy is on track to resume moderate
recovery and meet its 2 percent inflation target.
Manufacturers surveyed by the ministry expect output to fall 0.7
percent in June but grow 1.5 percent in July, the data showed on
Monday. Market reaction was muted.
"Output is recovering. But it is still in the stage of adjustments
given falling shipments and rising inventory," said Takeshi Minami,
chief economist at Norinchukin Research Institute in Tokyo.
The ministry maintained its assessment of factory output, saying it
is in a flat trend.
The government raised the national sales tax to 8 percent from 5
percent on April 1 to pay for rising welfare costs, which has
chilled private spending. Manufacturers have reduced production
after the tax hike to avoid piling up inventories.
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Analysts expect the economy to contract in the second quarter due to
the tax hike, with a Reuters poll conducted in June projecting a 1.2
percent quarterly drop.
However, a bigger-than-expected decline in household spending and a
drop in exports in May mean that the contraction could be more
pronounced and subsequent rebound may be delayed.
The BOJ has signalled that it sees no immediate need to expand its
massive stimulus programme deployed in April last year, stressing
that the pullback in demand after the tax hike will be temporary.
(Editing by Eric Meijer)
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