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Japan says economy ‘recovering’ first time since financial crisis Investors eye results, BoJ

TOKYO, Jan 17, (AFP): A Japanese government report Friday said the economy was “recovering”, its first use of the word since the 2008 global financial crisis, as Prime Minister Shinzo Abe works to revive years of tepid growth. Tokyo’s monthly checkup on the world’s third-largest economy used some of its most upbeat language in years as it pointed to a pick-up in consumer and capital spending. “The Japanese economy is recovering at a moderate pace,” it said. “Concerning short-term prospects, the economy is expected to be on a recovery trend as household income and business investment increase, while exports move toward picking up,” it added. The latest report is also the most rosy rating on the once-powerhouse economy since its January 2006 paper. It comes about a month after Abe’s one-year anniversary as premier following landslide national elections which he won largely on a pledge to restore Japan’s economic glory.

Abe’s policy blitz, dubbed Abenomics, helped to sharply weaken the yen which is good news for exporters as it makes them more competitive overseas and inflates the value of repatriated profits. The premier has vowed to conquer years of deflation which weighed on consumer spending and, in turn, hurt producers, holding back new investment by Japan Inc. Convincing firms to hike stagnant wages so consumers will spend more is a cornerstone of Abe’s blueprint to fix the economy. November data showed prices rising 1.2 percent, their fastest pace in five years and moving closer to the Bank of Japan’s ambitious 2.0 percent inflation target.

Analysts have cast doubt on the BoJ’s two-year timeline to meet that goal, as they warn that a sales tax hike in April — seen as crucial to shrinking Japan’s huge national debt — would derail a recovery. Tokyo’s report Friday cautioned over the rate hike to 8.0 percent from 5.0 percent, saying that “a last-minute rise in (consumer) demand before a consumption tax increase and subsequent negative reaction are expected”. It also warned that an unsteady recovery overseas was a “downside risk” for Japan’s economy. Speculation has been rising that the BoJ, which holds a policy meeting next week, will launch further easing measures to counter any slowdown, after unleashing an unprecedented stimulus campaign last April. “Barring some major economic or market shock, the Bank of Japan is likely to wait until the second half of this year before announcing any further monetary stimulus,” London-based Capital Economics said this week. “This would allow the board to gauge how the economy has weathered this April’s consumption tax hike,” it added.

Meanwhile, Tokyo investors will be eyeing corporate results next week as the Japanese earnings season gets under way, as well as a two-day Bank of Japan meeting. Over the next few weeks, major firms from Sony and Toyota to Japan Airlines and Hitachi report their fiscal third-quarter numbers, with a sharply weaker yen likely to boost their bottom line. A drop in the yen tends to lift the Nikkei-225 stock index as its makes Japanese exporters more competitive overseas and inflates repatriated profits. “Players will continue to watch foreign exchange rates as a weak yen would likely prevent the Nikkei index from sliding further,” said Kenzaburo Suwa, a strategist at Okasan Securities. “They’ll also pay attention to earnings results as another the season is about to begin,” he added.

The Tokyo market was flat Friday, after losses on Wall Street fuelled by disappointing US corporate results. The Nikkei edged down 0.08 percent, or 12.74 points to 15,734.46. The index finished 1.12 percent lower over the week. The broader Topix index of all first-section shares rose 0.23 percent, or 3.00 points, to 1,297.39. It slipped 0.08 percent over the week. Next week’s Bank of Japan meeting comes amid speculation it could launch further monetary easing measures to counter any slowdown linked to a sales tax rise in April.

“But nothing is expected this time,” Suwa said, echoing many analysts who expect the BoJ to stand pat on fresh policy moves until later this year. In Tokyo forex trading, the dollar drifted lower to 104.34 yen from 104.37 yen in New York Thursday, as a Japanese government monthly report described the economy as “recovering” for the first time in six years. Major exporters lost ground, with Toyota falling 0.97 percent to 6,200 yen while Sony was down 1.33 percent at 1,780 yen. Nippon Steel & Sumitomo Metal eased 1.46 percent to 337 yen after a major fire engulfed its steel plant in central Japan on Friday. The fire was brought under control within a few hours.

Nintendo ended down 2.75 percent at 14,645 yen, before the firm announced it would swing back into the red this fiscal year as it slashed its annual sales target for the Wii U game console. It blamed poor sales over the holiday season. Wall Street’s dip Thursday came as the Department of Labor reported weekly jobless claims fell to 326,000, indicating the jobs market is recovering slowly. Also, it said core consumer prices — which exclude volatile energy and food prices — rose just 0.1 percent in December. The yearly rate was 1.5 percent, and the core rate was up 1.7 percent, below the Federal Reserve’s 2.0 percent target.

On the corporate side, US electronics retailer Best Buy plunged 28.6 percent on Wall Street after saying November-December same-store sales were 0.8 percent lower than the previous year’s holiday shopping season. Citigroup took a hit with below-forecast earnings and chip giant Intel also sank in after-market trade as it said net profit last year fell 13 percent. The Dow fell 0.39 percent and the S&P 500 slipped 0.13 percent a day after hitting a record high, but the Nasdaq edged up 0.09 percent.

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