Japan Economy

Japan's economy has shown further signs of recovery with an increase in industrial production and unemployment at a seven-year low. However, the government remained cautious after retail sales fell in April for a fourth straight month. The unemployment rate stayed at 4.1%, with fewer people actually out of work than a year ago. And there was a 1.5% rise in industrial output - prompting more talk that Japan would end its 0% interest rate policy.

Japan, the world's second-biggest economy, has endured years of declining prices but recent figures have shown that inflation is returning. The Bank of Japan is now expected to raise borrowing costs over the summer months, but bank governor Toshihiko Fukui said there would be no increase until "economic and price conditions" were right, and gave no hint of when that might be. The industrial production figures were weaker than analysts had expected, but manufacturers expect output to rise by 0.2% this month and by a further 1.3% in June. The Ministry of Economy, Trade and Industry said retail sales fell by 0.6% - more than expected - and were 2.4% lower than a year ago. Spending by households headed by a salaried worker - used by Japan as a gauge of consumption - slipped 4.3% from a year earlier. Higher fuel costs was probably a factor hitting demand, analysts said, and poor weather and a decline in the stock market may also have put people off shopping.

However, the unemployment figures meant analysts were not too gloomy about the consumer slowdown. "With the jobs market sustaining its pickup, there's little reason for consumption to deteriorate in coming months," said Goldman Sachs economist Daisuke Yamazaki. "The production data also suggests that the economy is firm. Considering this we say that while the economy isn't accelerating, it is recovering at a mild pace." Earlier this month, the Bank of Japan reported that the country's economy grew by an annualised rate of 1.9% during the first three months of this year - nearly double what observers had expected.

Adapted from BBC News May 30th 2006

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