Japan’s rebound from the March earthquake and tsunami sputtered in November as production and retail sales tumbled, deepening the nation’s return to the deflation that first took hold a decade ago.
Industrial output slumped 2.6 percent from October, more than all the forecasts in a Bloomberg News survey of 29 economists, a government report showed today in Tokyo. Retail sales slid 2.1 percent. Consumer prices excluding fresh food fell 0.2 percent from a year earlier after a 0.1 percent decline the previous month.
The weakening economy, hurt by Europe’s debt crisis and plans by companies from Panasonic Corp. to Nissan Motor Co. to shift production abroad, may undermine Prime Minister Yoshihiko Noda’s plan to raise taxes and cut the world’s largest debt burden. Lawmakers told reporters in Tokyo today that a tax panel set up by Noda’s party has proposed doubling the nation’s sales tax by 2015, a move opposed by some ruling party members who’ve threatened to quit over the issue.
“Fundamentally, Japan’s economy is on a downward slope,” said Yoshimasa Maruyama, chief economist at Itochu Corp. “Exports are falling and negatively impacting Japan’s economy due to the global slowdown.”
To stoke demand and help rebuilding efforts, Japan’s government has approved four supplementary budgets since the March 11 earthquake and tsunami, worth around 20 trillion yen ($257 billion). A separate budget account will also be created for the fiscal year starting April 1 to pay for reconstruction.
Floods Hit Production
The second consecutive drop in Japan’s consumer prices occurs against a backdrop of weakening global demand and the yen’s advance against the dollar. The yen has strengthened almost 6 percent in the past 12 months, the best performer among Group of 10 currencies. The dollar fetched 77.80 yen as of 11 a.m. in Tokyo from 77.88.
The yen’s gain has exacerbated woes caused by Thailand’s worst flooding in almost 70 years. The floods contributed to the drop in production, crippling the output in Southeast Asia of Japanese companies such as Sony Corp. (6758) and Honda Motor Co.
“The big drop in the numbers this time is due more to the Thai flooding than to the global economy,” Itochu’s Maruyama said. “In terms of the production numbers now, basically it’s on a downward trend in the long run.”
The biggest seasonally adjusted monthly drops in industrial production were in the information electronics industry, with overall output dropping 23.7 percent, today’s figures show. Passenger car output slid 12.6 percent; iron and steel production declined 1.2 percent.
Japan’s manufacturers said they planned on boosting output by 4.8 percent in December and 3.4 percent in January, signaling optimism over the outlook as disruptions from the floods in Thailand ease.
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U.S. Declines to Call China Currency Manipulator
The Obama administration declined to brand China a manipulator of its exchange rate while calling the yuan undervalued and vowing to press for further appreciation of the currency.
The Treasury Department, releasing its semi-annual report to Congress on the currency policies of major trading partners, said yesterday it will “press for policy changes that yield greater exchange-rate flexibility” in the yuan. The report also criticized Japan for unilaterally selling the yen in August and October, adding that the U.S. didn’t support those interventions.
The U.S. contends that China uses an undervalued currency to give its exporters an unfair advantage in overseas markets and boost growth. At the same time, the administration of President Barack Obama has sought to avoid actions that could cause friction with the world’s No. 2 economy and the second- largest U.S. trade partner.
Strong’ Pressures
The Treasury said in the report that China “has resisted very strong market pressures” over the past decade for appreciation of the yuan. “China’s real effective exchange rate has exhibited persistent and substantial undervaluation, although the estimated range of misalignment has narrowed over the course of the past 18 months.”
Geng Shuang, a spokesman for China’s embassy in Washington, didn’t respond to a request for comment on the Treasury report.
China often bristles at criticism that its exchange rate is undervalued. It disputed an IMF staff assessment in July that the currency is “substantially below the level consistent with medium-term fundamentals,” citing reasons including faulty current-account projections.
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Consumer Confidence Rose More Than Forecast
Confidence among consumers rose to an eight-month high in December as an improving job market helped Americans regain all the ground lost following the mid- year government budget battle and credit-rating downgrade.
The Conference Board’s index increased to 64.5, exceeding all estimates in a Bloomberg News survey and the highest since April, from a revised 55.2 reading in November, figures from the New York-based private research group showed today. Another report showed home prices fell more than projected in October.
Unemployment that dropped last month to its lowest in more than two years and the cheapest gasoline since February are prompting households to take advantage of discounts during the holiday shopping season. The improvement in sentiment may help sustain household purchases, which account for about 70 percent of the economy, into the new year.
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U.S. Home Prices Fell More Than Forecast
Residential real estate prices dropped more than forecast in the year ended October, showing a broad-based decline that indicates the U.S. housing market continues to be weighed down by foreclosures.
The S&P/Case-Shiller index of property values in 20 cities dropped 3.4 percent from October 2010 after decreasing 3.5 percent in the year ended September, the New York-based group said today. The median forecast of 27 economists in a Bloomberg News survey projected a 3.2 percent decrease.
The real-estate market is bracing for another wave of foreclosures that may keep pressure on home prices, indicating any housing recovery will take time to develop. Nonetheless, rising builder confidence, a pickup in construction and fewer unsold new properties for sale are among signs the industry that triggered the last recession is steadying.
