Weak economic data underline pitfalls of Abenomics

posted on November 27, 2015

Japan on Friday published a string of mostly weak economic data, the first major figures since news that the world's No. 3 economy had slipped back into recession.

A key inflation gauge showed prices fell in October from a year ago, while spending by households also dropped, delivering a double blow to Prime Minister Shinzo Abe’s economic growth program, dubbed “Abenomics.”

The weak figures came despite signs that Japan’s labor market remains tight, with the headline unemployment rate at a two-decade low of 3.1 percent, down from 3.4 percent in September.

But even the jobless numbers highlight a growing red flag for the economy — the unabated rise of part-time work for lower wages without benefits.

“Employment is rising, but those jobs are mostly part-time,” said Dai-ichi Life Research Institute’s chief economist Yoshiki Shinke.

“The supply-demand balance for stable, permanent positions is not firm. As a result, we are seeing more employment in low-wage jobs,” he said.

Earlier this month, gross domestic product shrank 0.2 percent in the July-September quarter, translating into an annualized contraction of 0.8 percent, marking the second straight quarterly decline.

In response, Abe on Friday ordered his government to draft an supplementary stimulus budget.

The economy briefly dipped into recession last year after consumers tightened their belts after the first stage of the doubling of the consumption tax raised the levy to 8 percent from 5 percent. This threw cold water on signs that Abe’s bid to spur the economy was working.

That downturn spurred the Bank of Japan to sharply increase its already massive bond-buying program — a cornerstone of Abenomics — effectively printing money in a bid to boost lending.

While Tokyo’s efforts sharply weakened the yen and stoked a stock market rally — beefing up corporate profits and enriching those individuals able to invest — its impact on an economy beset by years of deflation has been less convincing.

Daiwa Institute of Research economist Satoshi Osanai said the economy was “out of gear,” with most of Abenomics benefits limited to the country’s boardrooms.

“That’s why consumption is still weak, even though employment got better,” Osanai said. “(Any) economic improvement remains at the corporate level and has not spread to other areas, such as the household sector.”

Friday’s figures stated that core inflation, which excludes volatile fresh food prices, fell 0.1 percent in October, marking the third consecutive monthly drop.

Falling gasoline prices were the key culprit in pulling that particular index down, the internal affairs ministry said. When volatile energy prices leap, so does Japanese inflation, since Japan imports nearly all of its energy needs.

source by japantimes
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