Japan output jumps but consumers unconvinced by Bank of Japan stimulus

Fri Feb 27, 2015 3:00am EST
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By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - Japanese households cut spending more than expected and retail sales fell for the first time in seven months in January, data showed on Friday, a sign the central bank's radical stimulus has yet to convince consumers that inflation will take hold.

In contrast to the gloom felt among households, companies looked to be in better shape as they begin to benefit from the competitive advantage their goods get from a weak yen.

Factory output jumped at the fastest pace in nearly four years in January as companies ramped up spending at home and won more orders in emerging markets, suggesting that exports will keep the economy on track for a moderate recovery.

But the soft consumption readings underscore the unevenness of the recovery and pose a headache for the Bank of Japan, which hopes its aggressive money printing will drive up inflation expectations and prompt households to spend more.

"If consumer spending doesn't pick up by April, it will be difficult for industrial production to accelerate," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.

Separate data underscored the dilemma the central bank faces with inflation almost grinding to a halt on slumping oil prices, moving further away from the BOJ's ambitious target of reaching 2 percent around the next fiscal year beginning in April.

BOJ Governor Haruhiko Kuroda defended his two-year timeframe for achieving the target on Friday, warning that adopting a relaxed approach to the deadline would undermine efforts to defeat deflation.

But analysts are deeply skeptical of whether the BOJ can meet its goal, as they expect it to take at least six months for the benefits of lower oil prices to boost growth, assuming consumers will spend the money they save on their fuel bills.   Continued...

A man buys a food ticket at a restaurant in Tokyo February 26, 2015.  REUTERS/Yuya Shino