TOKYO: Japan’s data this week will provide an early picture of the growth performance in 2Q. As inferred from the production forecast index and the PMI, industrial output is likely to show a strong rise in April.
In line with the consensus, the country’s industrial production is expected to rise 4 percent m/m on a seasonally adjusted basis, notably up from the -1.9 percent m/m seen in March. This should help to confirm that the exports-driven recovery remains well on track in 2Q, thanks to the improvement in global demand, an upswing in the electronics sector, and fade of protectionism risks, DBS Bank reported.
Further, consumption growth is likely to continue to lag. Retail sales are expected to post a modest 0.1 percent in April, slower than the 0.2 percent in March. Falling unemployment rate and improving labour market conditions should encourage consumers to spend. But the results of spring wage negotiations were disappointing.
Actual wage growth should have remained sluggish in April, constraining the spending power of consumers. Meanwhile, consumer confidence index showed a dip last month, falling by 0.7 percentage point to 43.2, probably due to the geopolitical tensions related to North Korea. Headline CPI ticked up 0.2 ppt to 0.4 percent y/y. But the core-core CPI (excluding fresh food and energy) remained flat as expected, at zero percent.
“The divergence between strong growth and weak inflation figures looks likely to continue in the short term. It may not be easy for the BoJ to declare an end to deflation and to shift monetary policy anytime soon,” the report said.