2014.06.2923:26:08UTC+00Recovery back on track with Japanese output gain

After experiencing a drop during the month of the sales tax increase enactment, Japanese factory output has risen once more to ease the way for the economy’s continued recovery.

According to a new report released by the Ministry of Economy, Trade, and Industry, output from Japan’s factories increased by 0.5% in the month of May to signal a turnaround from a decline of 2.8% during the month before.  

The bounceback may encounter further troubles, however, as the ministry has described it as undergoing a flat trend. This is supported by the expectations of managers, from whom the ministry collected their data, for output to drop again this June by 0.7% before going on an upward surge of 1.5% in July. Norinchukin Research Institution chief economist Takeshi Minami credits this behavior to lowered levels of shipments coupled with growing stockpiles.

Nevertheless, the renewed strength of the industry reinforces the Bank of Japan’s (BoJ) belief that effects from April’s sales tax adjustment from 5% to 8% will be weathered by the east Asian economy without much external help. These impacts include a much larger decrease than expected in consumer spending and a possible overall decline in growth in the second quarter which Reuters forecasts to be at 1.2%.

With no added motivation to introduce additional policy, the country’s central bank is believed to hold off from any immediate action that will help push inflation rates to their target 2%. Instead, this may mean that the BoJ’s April 2013 stimulus package will be maintained especially if spending recovers as expected over the summer.