Japan’s
industrial production fell in February, undershooting all forecasts, as the
first sales-tax increase since 1997 risks stalling recovery in the world’s
third-biggest economy. Output fell 2.3% from the previous month, the steepest
drop in eight months, and the trade ministry said in Tokyo today. The
median estimate of 28 economists was for a 0.3% gain. A separate gauge of
manufacturing fell in March for a second straight month. While the weakness
partly reflected disruptions from heavy snowfall, the data showed manufacturers
are bracing for a slump in demand following tomorrow’s sales-tax increase.
Inventories fell for a seventh straight month, lessening the likelihood of even
sharper output cuts as the higher consumption levy pushes the economy into a
one-quarter contraction in April-June.
The 3
percentage-point increase in the sales tax is forecast to cause the economy to
shrink at an annualized 3.5 percent in the second quarter, before a rebounding
grow 2.1 percent in the following three months, according to a separate
Bloomberg survey. Prime Minister Shinzo Abe gave the go-ahead for the sales tax
increase to help deal with the world’s biggest debt burden, even as he pushes
reflationary policies to spur growth and end 15 years of deflation.
Yen weakened
against the greenback as Russia and the U.S. sought a diplomatic solution to
the crisis in Ukraine, reducing demand for havens. The yen pared its
biggest quarterly gain since the three months through September 2012 after U.S.
Secretary of State John Kerry and Russian Foreign Minister Sergei
Lavrov met yesterday. Japan’s currency weakened 0.4% to 103.22, cutting
its advance this quarter to 2%.
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