Japanese factory output rose at the fastest pace in eight months and the jobless rate hit a two-decade low in February, a sign a rebound in overseas demand continued to brighten prospects for the country's export-reliant economy. But household spending remained soft and consumer inflation was flat when stripping away the effect of rising energy costs, underscoring the challenges the Bank of Japan faces in generating sustained price rises backed by steady wage growth.
The data may reinforce market expectations that while the BOJ's next policy move could be to withdraw its massive stimulus, the timing would be some time away, analysts said. "We can tell that Japan's economy is benefiting from a cyclical pickup in the global economy," said Masamichi Adachi, senior Japan economist at JPMorgan Securities. "But corporates are reluctant to raise prices because consumption is weak ... The simple answer for the government and the BOJ is to wait and see."
Industrial output rose 2.0 percent in February from the previous month, beating market forecasts for a 1.2 percent gain to mark the biggest increase since June last year, as automakers ramped up production of new models, data showed on Friday. Separate figures showed Japan's jobless rate hit a 22-year low of 2.8 percent in February, down 0.2 percentage point from the previous month. But household spending fell 3.8 percent in February from a year earlier, a bigger decline than market forecasts for a 1.7 percent drop, suggesting a tightening labour market has yet to drive up wages enough to boost consumption.
A rebound in energy costs pushed core consumer inflation to 0.2 percent in February, matching a median market forecast and marking the fastest annual pace in nearly two years. But a separate consumer price index that excludes the effect of volatile fresh food and energy costs rose just 0.1 percent in February, suggesting that weak consumption was preventing companies from raising prices of non-energy items. Tokyo core consumer prices, which are less influenced by gasoline costs and released a month ahead of nationwide figures, fell 0.4 percent in March from a year earlier. That was bigger than a 0.3 percent drop in February.
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