• Japan inflation up 0.4% in May, spending weak

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    TOKYO: Japanese inflation rose again in May, government data showed Friday, but it remains way off the central bank’s target while weak household spending underlined the challenges still facing Tokyo’s battle to ramp up prices.

    The country’s prospects have been improving on the back of strong exports, with investments linked to the Tokyo 2020 Olympics also giving the economy a shot in the arm.

    But consumer spending remains tepid and the Bank of Japan has struggled to lift inflation despite years of aggressive monetary easing.

    After stripping out the volatile cost of fresh food, inflation in May came in at 0.4 percent, the fifth consecutive monthly rise, according to the internal affairs ministry.

    However, the figures fall well short of the BoJ’s 2.0 percent inflation target — seen as crucial to conquering Japan’s long struggle to slay deflation that is blamed for holding back the once-booming economy.

    Separate data Friday showed household spending edged down 0.1 percent in May from a year ago, extending more than a year of declines.

    The rise in prices was driven more by higher energy costs rather than a broad-based rise backed by stronger consumer spending.

    “The rise in inflation was largely due to an increase in energy prices,” said Japan Research Institute economist Yusuke Shimoda.

    “The decline in consumer spending narrowed but that doesn’t mean a strong recovery is around the corner,” Shimoda told AFP.

    Other economic indicators released on Friday also underwhelmed.

    Factory output in May dropped 3.3 percent, reversing 4.0 percent jump in April, while May’s unemployment rate rose to 3.1 percent from 2.8 percent the previous month.

    “Japanese companies, especially in service sectors, are cautious about raising prices,” Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research & Consulting, told Bloomberg News.
    “That suggests that they are not confident enough about the outlook for the economy.”

    Japan has been struggling to defeat years of deflation and slow growth that followed the collapse of an equity and property market bubble in the early nineties.

    Falling prices tend to discourage spending by consumers, who might postpone purchases until prices drop more or look to save money instead.

    That puts pressure on businesses, creating a cycle in which firms then cut back on expanding production, hiring new workers or boosting wages.

    Prime Minister Shinzo Abe swept to power in late 2012 on a pledge to reignite Japan’s economy with a plan dubbed Abenomics.

    The scheme — a mix of huge monetary easing, government spending and reforms to the economy — stoked a stock market rally and fattened corporate profits.

    But there has been growing criticism about the plan’s muted impact on the wider economy.

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