Japan on track but output tumbles

A separate survey showed manufacturing activity expanded in September at the fastest pace since the March 2011 earthquake, highlighting the strength of an economy backed by rising exports and firm domestic demand.

Other data out yesterday also signalled consumer spending gaining momentum.

Retail sales rose 1.1 per cent in August from a year earlier and housing starts rose 8.8 per cent, up for 12 months in a row, although housing starts were below the 12.7 per cent gain seen in a Reuters poll.

The new data is likely to support the case for Prime Minister Shinzo Abe to approve a planned sales tax hike for next April, the biggest effort by Japan in decades to fix its tattered public finances.

“Factory output is a bit weak now, but will return to levels seen before the March 2011 earthquake around October. Companies are starting to produce more and aren’t too worried about uncertainties in the overseas economy,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

Abe is expected to make the sales tax decision after confirming readings in a key Bank of Japan business sentiment survey due last night.

The planned two-staged sales tax hike – from 5 per cent to 8 per cent next April and to 10 per cent in October 2015 – helps underpin private consumption.