Japan's Prime Minister Shinzo Abe. Picture: REUTERS
Japan's Prime Minister Shinzo Abe. Picture: REUTERS

Tokyo — A raft of broadly positive economic data gave Japan’s Prime Minister Shinzo Abe a boost on Friday, as he kicked off an election campaign in which the health of the world’s third-biggest economy will play a major role.

Factory output grew more than expected while household spending — seen as key for Japan’s exit from years of deflation — edged up and the unemployment rate sat at a more than two-decade low.

Japan’s industrial production growth came in at 2.1% in August, the latest evidence of an economic recovery, capping off six consecutive quarters of gains in the April-June period — the longest winning streak in more than a decade.

The country’s prospects have recently improved with investments linked to the Tokyo 2020 Olympics giving the economy a shot in the arm.

"On the whole, the data show the Japanese economy is on a healthy path" to recovery, said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, adding that the latest factory output figure was "especially good".

UBS economist James Malcolm added: "In short, things are on track."

Abe stunned Japan this week with a surprise call for a snap election, seeking to capitalise on a weak opposition and a boost in the polls, as voters welcome his hawkish policy towards neighbouring North Korea which has launched missiles over Japan.

The premier, who dissolved parliament on Thursday, claimed that his government "put an end" to Japan’s decades-long economic slump after he took office in late 2012 in a landslide election victory.

He rose to power on a mission to kick-start Japan’s once-booming economy with a policy blitz known as "Abenomics", a combination of big government spending, ultra-loose monetary policy and structural reforms.

But while it fattened corporate profits and sent the stock market higher, it has failed in the goal of shrugging off the deflation that has plagued Japan for years and held back growth.

Abe now faces an unexpected and formidable challenge from popular Tokyo governor Yuriko Koike, who stole his limelight with her newly launched Party of Hope. As her party attracts an influx of legislators from a wide range of ideological backgrounds, Koike said the pace of much-needed reforms under Abe’s government was too slow, and suggested a planned sales tax increase in October 2019 would kill Japan’s fragile economic recovery. However, the inflation data was not such good news for Abenomics.

After stripping out volatile prices for fresh food, inflation was at 0.7%, according to the internal affairs ministry — the eighth consecutive month of price rises and the highest in more than two years.

But that is still nowhere near the Bank of Japan’s (BoJ’s) 2% target, despite years of record monetary easing by the BoJ.

Also on Friday, household spending in August edged up 0.6% from a year earlier, slightly off market expectations of a 0.9% rise but the first gain in two months.

Spending is seen as another key to the exit from deflation, as consumers tend to delay making purchases in an environment in which inflation is low or prices are falling.

The unemployment rate stood at 2.8%.


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