Consumer Prices
Japan's annual consumer inflation accelerated again in May, with the general index hitting a new decade-high of an annual 1.3% on surging energy and food prices and adding to the Bank of Japan's headaches over how to react to the pressire of rising costs that are now evidently begining to hurt the economy.
The core consumer price index (CCPI), which excludes volatile fresh food prices but not other food products or oil prices, rose 1.5 percent from the same month last year, above a consensus market forecast for a 1.4 percent rise. Japanese consumer inflation has have been rising gradually this year, largely due to spikes in prices of food and oil, after hovering below the zero line for most of 2007.
Japan has been suffering from some kind of deflationary pressure or another for more than a decade now, but the return of inflation has not been seen as especially welcome as it is being driven entirely by rising import costs rather than pressures from a stronger domestic economy.
The fear is that with this cost push inflation the higher costs of commodities such as crude oil, steel and grains will cut into company profits and consumer spending and hence slow the domestic economy.
And meanwhile the so called "core-core" CPI - ie excluding energy and food - remains in deflationary territory, being down 0.1 percent year on year in May. Food prices jumped 2.4 percent from a year earlier.
"The rise in the price index is not favourable at all as it was not caused by increasing demand," said Hiroko Ota, minister for economic and fiscal policy. "The higher material costs, as well as higher oil prices, are undermining corporate performance and consumer sentiment".
Household Spending
Consumer spending fell in May as higher prices for basics and the prospect of lower summer bonuses hit household budgets. The Ministry of Internal Affairs and Communications reported that average household spending fell a real 3.2 per cent in May from a year earlier, with the average monthly income of households down by 0.6 per cent. This was the third straight month of decline, and it was a sharper drop than the 2.7 percent annual decline in April.
Household spending by salaried workers fell by 0.9 percent on year in May, while the propensity for households to consume was 93.1 percent - down 1.0 point.
Unemployment
The jobs-to-applicants ratio fell to 0.92 in May, meaning 92 jobs were available per 100 applicants, down from 0.93 in April but matching the market consensus, while the unemployment rate stayed at 4 percent in May. Japan's seasonally adjusted unemployment rate stood at 4.0 percent in May, unchanged from the previous month, but up by 0.2% on May 2007.
The number of jobless people totaled 2.70 million, up 120,000 from a year earlier, the largest growth since 130,000 recorded in January 2003, the Ministry of Internal Affairs and Communications said their preliminary report.
It was the second straight month of growth following the 70,000 April. The ministry left unchanged its basic assessment that a recovery in Japan's employment "has stalled." The Ministry spokesman also indicated that the assessment "has been slightly skewed downwards."
He pointed out that the number of women who have stopped job searches increased in May and that the number of elderly who involuntarily left their jobs also rose in the reporting month.
A separate report from the Ministry of Health, Labor and Welfare said the ratio of job offers to job seekers in May was at a seasonally adjusted 0.92, down from 0.93 in April for the fourth straight monthly drop. That means there were 92 jobs available for every 100 job seekers. According to the labor ministry, the number of job offers grew 1.7 percent in May from the previous month and that of job seekers climbed 2.3 percent. The number of new job offers fell 15.6 percent from a year earlier. It is also likely that the deteriorating confidence among companies amid slumping exports and a profit squeeze from high raw material prices will curb firms' demand for labor.
Japan is also now no longer generating extra employment, with the number of jobholders sinking 210,000 from a year earlier to 64.78 million, thus registering the largest decline since 370,000 in June 2004. It was also the fourth straight monthly drop.
The number of male jobholders totaled 37.75 million, down 150,000 from a year earlier, while the number of female workers was down 50,000 to 27.04 million. The number of people who voluntarily quit their jobs was up 50,000 on May 2007 - and reached 950,000 - while people who were laid off totaled 640,000, up 60,000.
By industry, the number of jobholders continued to fall in the construction sector, while employment in the medical and welfare sector rose. By company size, the number of employees shrank in firms with less than 500 workers compared with a year earlier, but rose in enterprises with 500 or more staff. The results underline the gap in business confidence between small and large firms.
Industrial Output
Industrial production, considered by many economists to be the single best indicator of economic activity, rose 2.9 per cent in May, slightly better than expected, after a 0.2 per cent contraction in April. This was the first increase in three months. The government downgraded its assessment of industrial production for the first time since December stating that output is showing signs of weakness because of higher energy costs and weakening global demand.
The Ministry indicated the change in its assessment by adding the words "a weak note" to the statement, and this weakness reflects sluggish demand for Japanese products in North America and Europe on the back of slowing economies in the regions and rising raw material costs according to the Ministry.
The ministry went remained on a bearish footing depite the headline figure of 2.9 percent gorwth in May, since even this fell far short of the 4.7 percent increase it had projected. The ministry is now projecting a fall of 0.4 percent in output from manufacturers for the April-June period. If this prognosis is fulfilled Japan's manufacturing output will experience the second straight quarterly shrinkage for the first time since the April-June 2001 quarter. In tandem with the decline in household spending a weakening exports this could suggest that GDP may have contracted in Q2 2008.
Compared with April, production in the transport equipment segment, the biggest contributor to the overall output gain in the reporting month, jumped 9.3 percent and that in the information equipment sector surged 10.2 percent, led by robust sales of mobile phones and car navigation systems.
The ministry said output from manufacturers is expected to decrease 0.9 percent in June but gain 2.2 percent in July. The June slump is due chiefly to projections of declining output in the automotive, general machinery and electrical machinery sectors. The transport equipment sector is forecasting an output loss of 4.0 percent in June. But it is expected to increase 2.8 percent in July.
Conclusion
It is hard to avoid the conclusion that for once Bloomberg may be a bit nearer the point here than the Financial Times is, since while it is too early to talk of recession in Japan yet, there are evident signs of weakening everywhere, despite the seemingly impressive headline industrial output numbers.
