Japanese industrial production rises

Tokyo. – Japanese industrial production rose the most since January in a sign that companies are recovering from the blow of a higher sales tax.
Output increased 2,7 percent in September from the previous month, the trade ministry said, beating the 2,2 percent median estimate of economists.

That trimmed the decline for the third quarter to 1,9 percent, following a drop of 3,8 percent in the three months through June.

Prime Minister Shinzo Abe must decide whether the economy can bear another hike in the levy next year after an increase in April caused the sharpest economic contraction in five years.

Bank of Japan Governor Haruhiko Kuroda has said it would be hard to deal with risks should confidence in the nation’s finances be shaken by a delay while a finance official in Abe’s ruling party warned the economy isn’t strong enough.

“Today’s data is basically positive for the Japanese economy,” said Masaki Kuwahara, an economist at Nomura Securities in Tokyo.

“Outlook figures suggest that production will return to growth in the current quarter.”

Shipments in September rose 4,3 percent to the highest level in five months, and inventories declined 0,8 percent from August, when they were at the highest in more than five years, according to the trade ministry statement today.

Production of transport equipment, which includes cars, electronic parts and devices, and electrical machinery were the main contributors to the rising data, according to the trade ministry statement.

The ministry raised its assessment for production for the first time in a year, while noting output continued to fluctuate.

The BOJ, in an economic assessment earlier this month after August output unexpectedly declined, said some weakness was showing, “particularly on the production side.”

Abe will look at third-quarter data when he decides whether to proceed with an increase in the sales levy to rein in the world’s largest debt burden.

Nomura’s Kuwahara said the government was likely to go ahead with the tax hike while Toru Suehiro of Mizuho Securities said Japan’s economic prospects may not be strong enough to allow for an increase.

There have been some signs of resilience, with retail sales climbing the most in four months in September.

The economy is forecast to grow an annualised 3,4 percent in the third quarter after a 7,1 percent contraction over the three months following the April sales-tax hike.

The Abe administration is trying to keep the economy on a path out of 15 years of deflation while containing public debt that is mounting with rising social-security costs of an aging population. – Bloomberg.