Output soars most since 2011 ahead of tax hike


The nation’s industrial production in January grew the most since 2011, indicating the economy is strengthening as a looming consumption tax bump stimulates demand, while inflation matched the highest level in more than five years.

Output rose 4 percent in January from the previous month, the Ministry of Economy, Trade and Industry said Friday, more than a 2.8 percent median estimate in a Bloomberg survey of 33 economists. Consumer prices excluding fresh food climbed 1.3 percent from a year earlier, the National Bureau of Statistics said.

Economic growth is set to surge this quarter as consumers and businesses splurge ahead of the sales tax increase in April.

The test for Prime Minister Shinzo Abe’s “Abenomics” policies and the Bank of Japan will be steering the nation through the aftermath, with the economy set to contract for a quarter and analysts projecting that BOJ Gov. Haruhiko Kuroda will be forced to add to already unprecedented easing.

“Demand is likely to decline considerably after the consumption tax increase,” said Yoshimasa Maruyama, chief economist at Itochu Corp. “The tax rise may have a harsher impact on the economy than the government and BOJ predict.”

Manufacturers plan to cut output 3.2 percent this month, the most since the huge earthquake and tsunami in March 2011, METI said.

The economy is forecast to contract an annualized 3.9 percent in the April-June period, slumping after a projected fifth straight quarter of growth, according to a Bloomberg survey.

Twenty-five of 34 economists forecast the BOJ will add to stimulus by the end of September, with 13 of those projecting action by the end of June, according to a Bloomberg survey conducted between Feb. 6 and 12.

The BOJ said it aimed to drive core inflation to 2 percent in about two years when Kuroda boosted easing last April. Most Policy Board members said that target will likely be reached toward the latter half of the two-year projection period through March 2016, according to minutes of January’s policy meeting.

The goal may take some time to achieve, board member Sayuri Shirai said in a speech at Columbia University on Thursday, according to a posting on the central bank’s website.

She said a “relatively large” difference remains between the BOJ’s inflation forecasts and those of economists, and that the two-year time horizon for reaching the goal should not be rigid.

Barclays PLC sees it taking until around 2017 for core inflation to reach 2 percent, economists Kyohei Morita and Yuichiro Nagai wrote in a note.

Economic and fiscal policy minister Akira Amari said last week that Japan has yet to exit from 15 years of deflation.

Surging production of transport equipment and machinery helped to drive output to its biggest gain since June 2011. Household spending jumped 1.1 percent from a year earlier, more than 0.5 percent projected in a Bloomberg survey.

Retail sales posted the biggest rise in January since April 2012, rup 4.4 percent year on year to ¥11.7 trillion, the most for the month of January in data dating to 1980, METI said. The consensus forecast was for a 3.8 percent rise.

Shirai said many households see price gains as unfavorable.

Overall consumer prices rose 1.4 percent from a year earlier, while inflation, excluding perishables and energy, held steady at 0.7 percent.

The job market showed further signs of improvement, which could start to support wages and help households deal with the higher sales tax and inflation.

Wages, excluding overtime and bonuses, fell 0.6 percent in December from a year earlier, the 19th straight monthly fall.

Labor unions at all of Japan’s automakers are seeking increases in base salaries as companies including Toyota Motor Corp. and Honda Motor Co. forecast record profits this fiscal year.

The BOJ will judge the economic outlook cautiously in the first half of next fiscal year starting April 1 as it expects indicators to be volatile after the sales tax increase, Policy Board member Koji Ishida said in a speech in Saitama on Wednesday.

Having jump-started the economy with fiscal and monetary stimulus, the focus is on whether Abe follows through on steps to loosen business regulations in a growth strategy due to be announced in June.

An incomplete package could restrain growth, shaving 2 percent from the economy by the end of the decade, the International Monetary Fund said in a report in August.