Looking at the data released this week, you can understand why the Bank of Japan moved to an even easier monetary policy stance at its truncated one-day meeting on Monday.
The Bank of Japan pledged on Monday to buy unlimited amounts of bonds to keep borrowing costs low.
Yesterday the country’s Diet (lower house of the parliament) approved a $US241 billion supplementary budget and stimulus package.
The 25.7 billion yen package will fund part of a $US1.1 trillion stimulus package Prime Abe announced in early April to combat the worsening health crisis with COVID-19 infection rates soaring.
It is clear the Japanese economy is starting to head into stormy weather.
Unemployment hit a year high in March after hitting a 28 year low in December, industrial production weakened in March as well and retail sales slumped nearly 5%.
And all that came before the Abe government significantly tightened its state of emergency, extending it nationwide from major cities, Tokyo and Osaka.
Retail sales slumped 4.6% in March from a year earlier, pulled down by falling demand for general merchandise and clothing as well as plunging department store sales.
The fall was at the fastest pace since last October’s sales tax hike as the outbreak forced department stores to shut their doors and consumers cut back on spending. The closures and reduced spending have intensified since March with the state of emergency declared in April.
Analysts point out that Japan was struggling with weak consumer demand before the outbreak after the government raised the sales tax to fix its heavy public debt burden, which is more than twice the size of the gross domestic product.
The economy shrank an annualised 7.1% in the three months to December due to the hit from the U.S.-China trade war and the sales tax hike. Now the March quarter data, which is out shortly, will confirm a recession with another quarter of contracting growth.
Figures on Thursday showed factory output slipped 3.7% in March from the from February, a smaller decline than the 5.2% drop in market forecasts. It was the sharpest fall in production since October last year and followed a downwardly revised 0.3% drop in the previous month.
A rise of 1.4% is forecast for April, but that won’t restore output to levels in February.
Carmakers and machinery manufacturers suffered output declines due to slower demand for parts and equipment from factories overseas, especially in China and the US.
The weak retail sales and production data came after figures on Tuesday showed the widening hit to jobs from the pandemic.
The March jobless rate rose to its highest in a year, while job availability slipped to a more than three-year low. The seasonally adjusted unemployment rate rose to 2.5% percent, its highest level since March last year.
The unemployment rate stood at 2.2% in December, the lowest since 1992, so the build-up in jobless numbers has been quick by Japanese standards.
The jobs-to-applicants ratio (a key measure of labour market demand) fell to 1.39 in March, the lowest since September 2016.
Economists say this worsening in the labour market is the start of a slide that could see jobless top 4% in the months ahead – low by Australian standards, but high by Japanese.
