Japan inflation, factory output pick up in February

Japanese inflation and factory output picked up in February while the unemployment rate dipped to a two-decade low, official data showed on Friday, a rare string of upbeat news for the world's number three economy.

But the positive figures were tempered by still-weak household spending and little evidence that a tight labour market was leading to pay rises and driving up prices.

Japan's core consumer prices, excluding volatile fresh food, rose 0.2 percent from a year earlier, driven by a rise in energy prices, according to the government data.

The latest inflation rate is still a long way off the Bank of Japan's two-percent target, but it marked the second consecutive on-year rise after a pick-up in January ended a long string of declines.

Meanwhile, February industrial production expanded by a stronger-than-expected 2.0 percent and the jobless rate fell to 2.8 percent from 3.0 percent the previous month, the lowest level since the mid-nineties.

The figures are good news for an economy that has been struggling to mount a firm recovery and put years of deflation in the rear view mirror.

Household spending remained weak, falling worse-than-expected 3.8 percent from a year ago.

That marked 12 months of decline, although the February fall was exacerbated by 2016 being a leap year -- meaning there was an extra day's spending to be accounted for.

"Overall, I had a good impression" of the data, said Taro Saito, senior economist at NLI Research Institute in Tokyo.

"Because last year was a leap year, household spending looks worse than it really is. Excluding that factor, it was actually up in February," Saito added.

While Japan's job market is tight, individual spending -- which accounts for more than half of the country's GDP -- had remained in the deep freeze.

And with cash-rich firms not splashing out on big pay rises, analysts are doubtful about a big pick up in spending anytime soon.

"Japan's economy continued to record solid growth in the first quarter," Marcel Thieliant at research house Capital Economics said in a commentary.

"However, there is still no evidence that the tighter labour market is fuelling price pressures."

Japan has been struggling to reverse a years-long deflationary spiral of falling prices and lacklustre growth.

Prime Minister Shinzo Abe swept to power in late 2012 on pledge to cement a lasting recovery with a growth plan dubbed Abenomics.

The scheme -- a mix of aggressive monetary easing and huge government spending along with reforms to the economy -- stoked a stock market rally and fattened corporate profits, but the effect on the wider economy has been less dramatic.

Key to the growth plan is the central bank's monetary easing policy and its bid to hit two percent inflation. The timeline has been repeatedly pushed back and the BoJ now expects to reach its price goal by March 2019 -- four years later than planned.

source: AFP