TOKYO: Japan's jobless rate edged higher and industrial production fell slightly in February as consumer prices also fell, underscoring the fragility of the recovery of the world's third-largest economy.
The government data released on Friday showed the main consumer price index fell 0.3 per cent from a year earlier as deflation continued to defy the combined efforts of the government and central bank to move toward a 2 per cent inflation target. However the CPI was up 0.1 per cent from January's figure.
Unemployment rose to 4.3 per cent from 4.2 per cent the month before, while industrial production slipped by 0.1 per cent in the first decline in three months. The unemployment rate for those below the age of 35 is significantly higher, at over 6 per cent.
Japan's central bank governor, Haruhiko Kuroda, said on Thursday that he believed the economy was improving after years of stagnation and would enter a moderate recovery by midyear. But he acknowledged high uncertainty because of the global economy.
Kuroda has pledged to work with Prime Minister Shinzo Abe's government in achieving the 2 per cent inflation target set in January, preferably within two years, and ending years of growth-inhibiting deflation.
After taking power late last year, Abe's administration embarked on an aggressive stimulus program of government spending, monetary easing and planned reforms aimed at improving Japan's competitiveness. Revised figures show Japan's economy likely emerged from a recession late last year, but other data has been mixed.
The government's strategy will depend on getting consumers, whose spending accounts for the lion's share of economic activity, to spend more, and that in turn will hinge on encouraging companies to raise wages and increasing higher. Many companies bore huge cash reserves after having shed debt from the collapse of the economic bubble over 20 years ago but are wary of increasing investment given the existing weak demand and the aging and shrinking of the Japanese population. Friday's data, coupled with signs of weakening retail sales, show the scale of the challenge in restoring consumer confidence. By boosting inflation, Japan's planners hope to persuade consumers to spend more now in anticipation of price increases in the future.
That could prove a daunting challenge given a drop in real wages over the past two decades and the weak job market, said Susumu Takahashi, head of the Japan Research Institute and a member of a government economic advisory council.
To achieve the inflation target the government must change expectations, he said. ''The only way is for the deflationary way of thinking to change. Without that it will be very hard,'' he said.
Speaking to lawmakers about the central bank's semiannual report, Kuroda said prices are unlikely to rise for the next few months but after that Japan would see some progress toward its inflation target as the economy moved toward a ''moderate recovery path.''
The central bank asset purchases and other strategies adopted so far have not been sufficient to reach the inflation target, he said, reiterating his intention to manage market expectations and ''make clear that we have adopted the uncompromising stance that we will do whatever is necessary to overcome deflation.''
Kuroda was appointed to succeed former BOJ governor Masaaki Shirakawa when he stepped down on March 19, three weeks before his term expired. The parliament is expected to approve his appointment to the five-year term, which is due to begin April 8.
The central bank is due to hold its first regular policy meeting under Kuroda April 3-4, though it may wait until later in the month to embark on any significant moves, such as a boosting its purchases of government bonds to help increase the amount of money available in the economy and encourage more investment by the private sector.