Japan's Factory Output, Retail Sales Slump In November, Casting Doubts On Economic Recovery

Japan’s retail sales and factory output suffered a slump in November, as exports fell more than expected and households reined in spending. The numbers released Monday left industry analysts unimpressed with some reportedly suggesting a clear recovery in the country’s economy could be pushed into early 2016.

Trade ministry data showed that industrial output fell 1 percent in November from the previous month, more than analysts' forecast of a 0.6 percent decline. Output dropped in industries including chemicals, automobiles, steel, and electronic devices, while it rose in sectors such as plastics and weaving.

The world’s third-largest economy narrowly dodged recession in the July-September quarter and analysts expect only modest growth in the current quarter as consumption and exports lag, raising doubts over Bank of Japan’s view that an expected pickup in consumer sentiment would help kick-start growth and drive the economy in 2016.

“Japan will continue a recovery but it’s likely to be unimpressive one,” Taro Saito, a director at the NLI Research Institute in Tokyo, told Bloomberg. “While the global economy picks up, it’s becoming clear that weakness in Japan’s consumer spending is being a drag for production.”

In a separate release, the ministry said that retail sales fell 1 percent in November from a year earlier, which is more than a market forecast for a 0.6 percent drop, as warm weather reportedly hurt sales of winter clothing.

Exports fell 3.3 percent in November compared to a year ago.

"We're finally seeing signs of pick-up in exports, but the economy has yet to make a clear turnaround," Takeshi Minami, chief economist at Norinchukin Research Institute, Japan, told Reuters. "There's risk consumption will remain sluggish and prevent economic growth from picking up."

Meanwhile, the head of an influential Japanese business lobby reportedly refused to back the government’s requests for businesses to increase employee wages next year — crucial to Prime Minister Shinzo Abe’s policies to break the cycle of weak growth and raise household spending.

"The government is hoping for higher wages, but the Keizai Doyukai, as an organization that corporate executives personally belong to, is not going to tell its members what to do," said Yoshimitsu Kobayashi, chairman of the Keizai Doyukai, one of Japan’s top three business lobbies, Reuters reported.

While the BoJ has signaled readiness to continue extending stimulus to revive the economy in a draft budget earlier in December, renewed concerns about the demand in emerging markets has made companies reluctant to hike wages.

Since taking office in late 2012, Abe has repeatedly asked big business lobbies to encourage their members to raise wages. Japan is expected to raise the minimum wage by 3 percent next year to encourage salaries to increase more broadly across all sectors.