Japan's lacklustre data deals blow to Abe growth push

Japan released a string of lacklustre economic data yesterday with inflation hitting its lowest level for more than a year, dealing another blow to attempts to conquer years of falling prices and tepid growth.

The figures come after Prime Minister Shinzo Abe called a snap election and delayed a sales tax rise set for next year after a previous levy increase hammered spending and pushed the world's third-biggest economy into recession.

Japanese consumer inflation came in at 2.9 per cent in October compared with a year earlier, official data showed, matching market forecasts but slowing from 3 per cent in September.

Prices increased largely because Tokyo raised the sales tax from 5 per cent to 8 per cent on April 1.

Adjusted for the tax rise, nationwide core inflation rate came in at 0.9 per cent, against 1 per cent in the previous month and its lowest level since October 2013.

The weak reading makes the Bank of Japan's 2 per cent inflation target, which it initially aimed to hit in 2015, look increasingly out of reach.

The central bank shocked markets last month by saying it would expand its asset-buying stimulus programme to about 80 trillion yen (HK$5.3 trillion) annually in a bid to overcome deflation and kick-start the economy.

"Even despite the [Bank of Japan's] surprise move, we maintain our view that there is a very long way to go before achieving the 2 per cent target," Credit Agricole said.

Also yesterday, figures showed factory production in October edged up a better-than-expected 0.2 per cent month on month, the second consecutive increase, as exports improved.

"It is a positive set of data that hints at hopes for future recovery in production," SMBC Nikko Securities said in a note.

Separate figures showed the country's unemployment rate slipped to 3.5 per cent from 3.6 per cent, while retail sales rose 1.4 per cent in October. However, household spending fell 4 per cent year on year, the seventh successive decline.

"Although real gross domestic product growth continued to be negative into July-September and Japan was in technical recession, demand for labour among firms is still robust, likely thanks to the waning impact of [the] consumption tax rise," said Marcel Thieliant at Capital Economics.

"[But] despite the tight labour market, inflation continues to moderate … Price pressure should moderate further in the near term as the recent plunge in crude prices has yet to be reflected in the cost of energy imports."

April's tax rise delivered a body blow to Abe's efforts to rev up growth just as the economy appeared to be turning a corner.

In response, Abe put off another rise due in late 2015 and called a snap election for next month that he described as a referendum on his policies.

Preliminary data this month showed Japan's economy shrank 0.4 per cent, or at an annualised rate of 1.6 per cent, in the July-September quarter.