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Japan economic data signal slow recovery despite boost from lower oil prices

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TOKYO — Japanese factories churned out more machinery and electronic devices in January as export shipments rose, but lower energy costs due to cheaper crude oil failed to provide a boost to consumer spending.

Weak retail sales and a cooling of already slow inflation underscored the fragility of the recovery of the world's third-largest economy. It also raised the potential for further monetary stimulus from the central bank.

Core inflation, excluding volatile food prices, was 2.2 percent, compared with 2.5 percent the month before and the lowest in 10 months. Excluding energy costs and food, the consumer price index rose 2.1 percent, level with the previous two months.

The inflation rate is overstated by a 3 percentage point increase in the national sales tax, to 8 percent from 5 percent, last April. The tax hike snatched the wind from the sails of the recovery Prime Minister Shinzo Abe has sought to nurture by massive monetary and fiscal stimulus.

Excluding the effect from the sales tax, the inflation rate was only 0.2 percent, Bank of Japan Gov. Haruhiko Kuroda said in a speech Friday.

The central bank is pumping trillions of yen (tens of billions of dollars) a month into the economy, seeking to vanquish deflation that discouraged investment and spending over the past two decades, aiming at an inflation rate of 2 percent.

Kuroda, the central bank governor, likened the 2 percent target to the velocity needed for a spaceship to escape the earth's gravitational pull.

"Reaching orbit at an altitude of 1 percent ... is not enough," he said. "This is because satellites at low altitude can be pulled back by gravity."

But he said the central bank would not adjust its policy based just on crude oil prices, which fell about 60 percent between December and January but have since recovered slightly.

PHOTO: People walk a pedestrian crossing in Tokyo Friday, Feb. 27, 2015. Japanese factories churned out more machinery and electronic devices in January as export shipments rose, but lower energy costs due to cheaper crude oil failed to provide a long-awaited boost to consumer spending. (AP Photo/Eugene Hoshiko)
People walk a pedestrian crossing in Tokyo Friday, Feb. 27, 2015. Japanese factories churned out more machinery and electronic devices in January as export shipments rose, but lower energy costs due to cheaper crude oil failed to provide a long-awaited boost to consumer spending. (AP Photo/Eugene Hoshiko)

The economy briefly fell back into recession after the sales tax hike but grew at a 2.2 percent annualized rate in October-December, helped by a surge in exports of machinery and electronics components, whose output rose in January.

Manufacturing output rose 4 percent from the month before, exceeding economists' forecasts, but was 2.6 percent lower than a year earlier.

Unemployment rose to 3.6 percent in January from 3.4 percent the month before.

Sustained growth in industrial production will depend on both export and domestic demand, said Harumi Taguchi, an economist with HIS.

"Production growth has remained lower that industry's outlooks due to weaker-than-expected demand and inventory levels are still high relative to longer-term trends," she wrote in a commentary.

Incomes have lagged behind inflation, sapping consumer demand and in turn corporate investment. Household spending fell by 0.3 percent in January from the month before and by 5.1 percent from a year earlier, suggesting the recovery in private spending remains sluggish.

As Japan begins annual "shunto" spring labor talks, Abe and other officials are pushing companies to raise wages to help support the recovery.

Many Japanese corporations have racked up record profits thanks to a weak yen, which inflates the value of overseas earnings when they are brought back to Japan. But based pay increases have been meager, and mostly confined to big companies, which employ a minority of Japanese workers.

The small and medium-sized companies that employ nearly three-quarters of all Japanese workers have been squeezed by rising costs and are less able to afford paying higher wages.


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