It was good news from the Japanese economy in that the rise in industrial production that started earlier in the year remains on track, meaning the faint recovery is continuing.
But we should not go overboard; it could run out of puff unless there’s a surge in demand for its myriad manufactured products, both from abroad and from inside Japan.
Other news isn’t good, with retail sales down and figures out today expected to confirm that unemployment remains a weight on the economy and the prospects of a sustained recovery.
Figures out yesterday in Tokyo from the Japanese Government showed a 2.4% rise in industrial production in June.
That took the growth in output for the second quarter to over 8%, the highest for more than 50 years.
The preliminary reading was down on the revised 5.7% rise in May, and also lower than market estimates and the initial forecast from companies given to the government of 3.1% (revised down to 2.7%).
China is buying more from Japan and with this and restocking and the re-opening of closed car and electronics factories, companies are building up output to restock customers.
The government’s stimulus spending is also chiming in, but the approaching change of government at the end of August could see a hiatus in spending as companies and consumers try to assess what the new government will do.
For example while car maker Honda boosted its 2009-10 car sales figures and thinks it may boost profit, Nippon Steel has lifted its estimate for the loss it expects to earn in the same year, as have other steel groups.
Figures out this week showed retail sales falling in June from May and from May 2008.
Demand remains weak, but the government sees July and August output picking up from first estimates.
Even with the month-on-month gains in the past four months, output was down 23.4% from June 2008. But that’s better than the 29.5% fall in May from May of last year.
The Bank of Japan has raised its outlook for the economy this month, citing rebounds in trade and production as reasons for saying “economic conditions have stopped worsening."
Orders for Japanese cars and electronics are increasing because companies are restocking inventories slashed during the recession.
Exports rose 1.1% in June from May, thanks to higher sales to China, and also to the US (from a very depressed level).
Economists believe the rise in exports, output will see the economy return to positive growth in the June quarter but they say the recovery will only hold if consumer demand replaces government spending and keeps demand growing.
Business investment is expected to be sluggish for the next year or more as companies decide if they should cut production permanently and close factories.
It’s why the most important indicator in Japan at the moment is retail spending and the news this week wasn’t good, down for a 10th month in June.
Sales fell 3% from June of last year, more than forecast by the market (it was looking for a fall of 2.5%).
Department-store sales fell 8.8% in June sales at convenience stores (a more import retailing idea in Japan than elsewhere) fell in June for the first time in 14 months, indicating that cash conscious consumers are really watching their spending.
The real kicker from the sales report was the surprise drop of 0.3% in June from May, the first fall in four months and a further indicator of the fragility of consumer demand, thanks to job losses and contracting pay packets.
Forecasters had been looking for a rise of 0.4%, which was way too optimistic.
They had been looking for a boost from the Government’s stimulus package of more than $A150 for each resident in Japan, plus subsidies for buying fuel-efficient cars and low energy using appliances, such as whitegoods and TVs.
Now for the politics to intrude.
But from New Zealand relatively better news with the central bank sitting on its hands and not moving rates, but leaving the distinct impression that another rate cut could occur sooner rather than later to take the air out of the strong Kiwi dollar.
In fact, New Zealand could not only get a rate cut, but at worst, the central bank sees no reason to lift rates until at least late next year.
NZ Reserve Bank Governor Alan Bollard said in his post meeting statement yesterday: “Despite signs of a leveling off in economic activity, the economy remains weak.
"We continue to expect to see a patchy recovery get underway toward the end of the year, but it will be some time before growth returns to healthy levels.
“The outlook remains highly uncertain. New Zealand’s merchandise exports are heavily weighted to soft commodities.
"As a result, New Zealand has not benefited to any significant extent from the rebound that has occurred recently in global hard commodity prices.
“Overall economic growth is evolving broadly in line with our forecasts in the June Monetary Policy Statement as the low OCR and stimulatory fiscal policy take effect.
"However, looking forward the level of the New Zealand dollar and wholesale interest rates are higher than assumed in our forecasts.’’
"The level of the dollar in particular, is not helping the sustainability of future growth, and brings with it additional economic risks.
“The forecast recovery is based on a further easin
