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POLITICAL ECONOMY
Japan's factory output rises in May
by Staff Writers
Tokyo (AFP) June 28, 2013


Japanese factories put in an unexpectedly strong performance in May, data showed Friday, a further sign that the world's number three economy is picking up as Tokyo embarks on a huge drive to boost growth.

The news will also provide an extra fillip to Prime Minister Shinzo Abe as his party faces parliamentary elections next month that are widely expected to see a resounding victory for him, solidifying his power base.

Friday's figures showed industrial production jumped 2.0 percent in May from a month earlier and add to an improving trade picture as exports to the United States and China surge on the back of a weaker yen.

The rise was the best since December 2011 and beat expectations of a 0.2 percent uptick.

Since taking office in December, Abe has launched a huge round of monetary easing, big fiscal spending and a series of reforms aimed at freeing up businesses -- a policy that has been dubbed "Abenomics".

Japan's sleep-walking economy has been given a jolt by the moves, with the yen shedding some of its export-sapping strength and the stock market surging. A weak yen makes Japanese exporters more competitive overseas and boosts the value of repatriated foreign income.

In afternoon forex trade the yen slipped to 98.90 against the dollar from 98.43 late Thursday in New York. The Nikkei stock index was also 3.55 percent higher.

However, while Friday's output data was impressive it was partly driven by an uptick in production of large machinery such as turbines and boilers, which were likely to be temporary, said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

"The June figures could weaken, although in the longer-term the trend is still upward," he added.

The news was also tempered by separate figures Friday that showed consumer prices flat in May.

While there was a modest increase in the metropolitan Tokyo area and the results were better than a fall in the previous month, they showed the hard work that still needs to be done to end years of stubborn deflation that has hindered the economy.

Household spending also remained weak, falling 1.6 percent from a year earlier.

The Bank of Japan in April set an ambitious target of reaching two percent inflation in as many years while also unveiling a massive bond-buying programme similar to that used by the US Federal Reserve. But Finance Minister Taro Aso acknowledged that a quick end to falling prices was unlikely.

"I don't think reversing deflation will be easy," he told a regular press briefing Friday.

Consumer prices and household spending figures are a key signal for economists who have been trying to ascertain whether "Abenomics" is actually working.

Deflation is bad for the economy because it encourages consumers to put of purchases in the hopes of getting them cheaper down the road which, in turn, weighs on producers.

This week, Abe said he will spend the next three years rebuilding the nation's fragile economy, having banished the gloom that covered Japan when he came to power.

Adding to Japan's challenges, the country's fuel imports have soared as most of its atomic reactors remain off-line since the huge earthquake and tsunami in 2011 sparked the world's worst nuclear accident in a generation.

The disaster at Fukushima knocked Japan's already lumbering economy and forced Tokyo to turn to pricey fossil-fuel imports to plug the energy gap.

Separate figures released Friday showed Japan's jobless rate was unchanged at 4.1 percent in May.

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