Japan: Upbeat Data Ahead of Legislative Elections

Consensus Forecasts

Latest monthly data proved upbeat after industrial production rose for the fourth consecutive month, consumer prices edged out of deflation for the first time in seven months and exports surged. Both industrial production for May and the June manufacturing PMI were solid, underlining a more robust recovery in Japanese activity. Industry expanded by 2.0% (m-o-m) thanks to increases in electrical machinery, chemicals and general-purpose production, while the PMI came in at 52.3, marking the fastest pace of increase in the index in over two years. In line with both reports, the Bank of Japan’s quarterly Tankan survey showed business confidence rising to +4 in the April-June period, from -8 in the March quarter, which is the first time the index has reached positive territory since September 2011. This brighter outlook, however, is not limited to Japanese manufacturers. On a y-o-y basis, the core consumer price index was flat in May after having posted declines in the previous six months. Moreover, in m-o-m terms, a modest 0.2% increase was recorded, suggesting that consumer prices may be gradually exiting their decades-long deflationary phase. As such, our panel now expects inflation to accelerate in 2014. Elsewhere, exports surged by a hefty 10.1% (y-o-y) in May, thanks to a weakening yen which helped to push up the value of goods. However, given that import costs rose on the back of a cheaper currency, Japan witnessed its third-largest trade deficit on record (¥-993.9bn).

In Tokyo’s local Assembly election (held on June 23), Japan’s ruling party took majority control, giving Prime Minister Shinzo Abe a boost heading into elections on July 21 for the upper house of parliament.

You can download a sample of Consensus Forecasts G-7 and Western Europe at www.consensuseconomics.com.

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