Japan’s output unexpectedly fell while stronger retail sales and an improving job market showed resilience, government statistics showed Tuesday as Prime Minister Shinzo Abe weighs another consumption tax increase.
Industrial production declined 1.5 percent in August from July, compared with the median estimate of 31 economists surveyed by Bloomberg News for a 0.2 percent gain. Retail sales increased 1.9 percent from the previous month and the jobless rate slid to 3.5 percent.
The data underscore headwinds for manufacturers as the yen trading near a six-year low fails to boost output, even as domestic demand crawls back after a blow from April’s consumption tax hike. Abe’s administration has signaled it is prepared to boost stimulus to help consumers and businesses weather any further increase in the tax next year.
“Consumption-related data shows signs of picking up, but production is weak, so the negative side prevailed overall,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co.
Abe is counting on a rebound from the steepest contraction in five years in the second quarter as he considers whether the economy can bear a higher sales tax to help curb the world’s biggest debt burden. The job market showed resilience, with 1.1 positions on offer for every seeker, highlighting constraints facing companies that could encourage wage increases.
Labor cash earnings — which includes base pay, overtime and bonuses — increased 1.4 percent in August from a year earlier, the sixth straight rise. Abe met with business and labor leaders Monday as he seeks to sustain momentum for wage gains that he wants to drive consumer spending.
A virtuous cycle in the economy is working, Bank of Japan Gov. Haruhiko Kuroda said in a speech Monday, adding that the central bank will adjust its policies if necessary to achieve its inflation target.
The higher consumption tax has added to the cost of living, with consumer prices climbing 3.3 percent, outpacing the gains in pay, according to data last week.
Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co., said that if economic indicators continue to be weak, pressure is likely to rise for further monetary easing.
Manufacturers have been cutting output to reduce inventories that in August reached the highest level since February 2009. Industrial production is forecast to rise 6 percent in September and decrease 0.2 percent in October, a report Tuesday by the Ministry of Economy, Trade and Industry showed.
Abe will decide by the end of this year whether to raise the sales tax to 10 percent in October 2015 from 8 percent. The economy is forecast to rebound in the July-September quarter, posting annualized growth of 3.4 percent, according to a Bloomberg News survey of economists, after contracting 7.1 percent in the three months through June.
The administration won’t increase the levy without support measures, economy minister Akira Amari said recently. A backup plan for stimulus will be prepared, according to Finance Minister Taro Aso.
Toyota Motor Corp. cut domestic output by 10 percent in August from a year earlier, the fifth straight monthly fall. Nissan Motor Co. slashed output in Japan by almost 21 percent, the third straight monthly cut. Nissan’s domestic sales dropped 21 percent in August, the seventh straight monthly decline.