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Pace of recovery in Japan accelerating again

People visit a Honda showroom in Konan Ward, Yokohama, on November 11.

Publication Date : 03-12-2013

 

The pace of economic recovery has started accelerating again as October economic indicators released last week show the nation is emerging from years of deflation.

Released Friday, the indexes showed that consumer spending is robust, the employment rate is growing and business activities are on an upward trend, which raised the price of a wide variety of goods and services. Attention is now focused on whether the virtuous economic cycle will continue.

October’s consumer price index for all items, the core CPI excluding perishables, and the CPI excluding food and energy all increased for the first time in five years.

“All the CPI data showed positive results. The nation is clearly in the process of emerging from deflation,” said Akira Amari, state minister for economic and fiscal policy, at a press conference after a Cabinet meeting.

Food prices are susceptible to weather, and the price of energy—most of which has to be imported—is significantly affected by exchange rates. Thus, the core CPI excluding food and energy is said to reflect the fundamental base of prices. As the core CPI rose 0.3 per cent from the year before, prices have gradually taken an upward trend.

The employment situation showed continued improvement. October’s effective ratio of job vacancies to job seekers rose 0.03 point from the previous month to 0.98, marking the highest level in five years and 10 months.

The ratio has been below 1 since November 2007, but the nation is now only a step away from havig an equal number of jobs and job seekers.

Industrial production in October rose 0.5 percent from the previous month, and production is expected to further increase in November and December.

The index of capital goods shipments—an index of equipment used at plants, excluding transportation equipment—also showed high growth, up 9.5 percent from September.

Consumer spending maintained a firm tone, rising 0.9 per cent from a year earlier. Housing starts in the nation increased 7.1 per cent year-on-year in October, indicating that an increasing number of people have purchased cars and houses before the consumption tax rate is scheduled to go up next year, observers said.

However, there still are tasks to tackle to make the virtuous cycle take hold.

Many companies are still cautious about hiring regular employees. According to a labor force survey, 37.4 per cent of all employees work on time-limited contracts, and the percentage is increasing.

Wage increases are indispensable to stop deflation, but payroll growth on a per capita basis is sluggish.

It is also worrying that the economies of emerging nations in Asia have slowed. According to gross national product data released October 14, exports declined for the first time in three quarters.

If the overseas economy drops off, Japan will not be able to boost its economy through exports, which could hinder the economic turnaround.

 

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