Japan Spending, Wages Rise as Prices Slump 13th Month

Japan’s household spending, wages and job openings increased, while consumer prices tumbled for a 13th straight month, signaling a sustained recovery that’s still not strong enough to end deflation.

Today’s statistics were released hours before Bank of Japan policy makers are scheduled to announce their decision on monetary policy. Board members must decide whether to step up their efforts to contain price declines by expanding a 20 trillion yen ($212 billion) lending program. The bank is forecast to keep its benchmark interest rate near zero.

“The economy’s recovery is steadily continuing,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. Even so, “deflationary pressures are still deep- seated in the economy,” he said.

Household outlays rose 4.4 percent in March from a year earlier, the biggest gain since May 2004, the statistics bureau said today in Tokyo. Consumer prices excluding fresh food slid 1.2 percent from a year earlier. Wages advanced 0.8 percent, the first increase in 22 months, the Labor Ministry said.

The ratio of jobs to applicants climbed to 0.49, meaning there are 49 jobs for every 100 candidates, the Labor Ministry said. The unemployment rate unexpectedly rose to 5 percent as college graduates entered the job market. The median estimate of economists was for the rate to stay at 4.9 percent.

Factory Output

A Trade Ministry report showed industrial production advanced 0.3 percent in March from February, when output declined for the first time in a year. The increase was less than the 0.8 percent median estimate of 28 economists surveyed by Bloomberg. Output surged 6.7 percent in the first quarter, the fourth straight gain.

Inventories declined 1.6 percent last month, signaling companies’ excess capacity is narrowing and deflationary pressure is moderating, said Curtis Freeze, chairman of Honolulu-based Prospect Asset Management Inc.

“ As long as that figure contracts we’re in good shape,” Freeze said on Bloomberg Television.

The Nikkei 225 Stock Average rose 1.4 percent at the lunch break in Tokyo. The yen traded at 94.10 per dollar at 11:56 a.m. in Tokyo from 94.05 before the figures were published. The yield on Japan’s 10-year bond was unchanged at 1.285 percent.

Exports to Asia have fueled Japan’s recovery from its worst postwar recession. A pickup in demand from the region prompted Canon Inc. to raise its full-year profit forecast and helped JFE Holdings Inc. post higher earnings in the three months ended March 31.

Firm Recovery

“We are on track for a firm recovery,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. Today’s numbers “prove that the pickup in exports is starting to benefit households,” he said.

Figures released earlier this month showed retail sales surged the most in 13 years in March and consumer confidence climbed to the highest level in more than two years.

Still, deflation continues to damp the outlook for companies. Matsuya Foods Co. and Zensho Co., operators of beef- bowl restaurants, this month slashed prices, following Yoshinoya Holding Co., the country’s biggest chain. Yoshinoya said this month its loss will expand almost seven times from an initial forecast because of the discount competition.

Production Forecasts

The economic recovery may slow as the effects of government stimulus measures wear off, according to economist Mari Iwashita chief market economist at Nikko Cordial Securities Co. in Tokyo. Companies surveyed by the Trade Ministry said they will increase output 3.7 percent in April before cutting it by 0.3 percent in May, today’s report showed.

BOJ Governor Masaaki Shirakawa and his colleagues will hold the key rate at 0.1 percent today, all 16 economists surveyed by Bloomberg News said. Thirteen said they expect the board to refrain from adding funds to the banking system.

Policy makers have signaled over the past month that they may raise their projections for gross domestic product and prices in a twice-yearly outlook report later today.

Finance Minister Naoto Kan said today that the central bank may forecast deflation will end next fiscal year by predicting consumer prices will either increase or be unchanged. Currently the board sees a 0.2 percent decline for the year ending March 2012 and a 0.5 percent drop in the current year.

The central bank is expected to announce its policy decision early afternoon and release its economic forecasts at 3 p.m. in Tokyo. Shirakawa will speak to the press at 3:30 p.m.

Kan last week last week called for price gains of as much as 2 percent. The ruling Democratic Party of Japan this month said it may include an inflation target in its platform for a July upper house election.

The BOJ will face “mounting pressure as the election approaches,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “For politicians, it’s easy to blame the central bank for lingering deflation and stagnant economic growth, and by doing that they can show the public they’re taking some action.”

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net; Aki Ito in Tokyo at aito16@bloomberg.net

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