Weak Japan economic data bolsters new PM's hand on stimulus

Dec 28 2012, 12:41 IST
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Japanese voters and the financial markets have welcomed the Abe government's aggressive stance on pumping cash into the economy. (Reuters) Japanese voters and the financial markets have welcomed the Abe government's aggressive stance on pumping cash into the economy. (Reuters)
SummaryJapanese voters and the financial markets have welcomed the Abe government's aggressive stance on pumping cash into the economy.

Poor Japanese manufacturing data on Friday gave new Prime Minister Shinzo Abe more ammunition to push for big spending and easy money to salvage the world's third largest economy from decades of deflation and its fourth recession since 2000.

Japanese voters and the financial markets have welcomed the Abe government's aggressive stance on pumping cash into the economy, pushing the benchmark Nikkei share average on Friday to its highest level since the March 2011 tsunami, despite the worse than expected drop in factory output. Opinion polls published by major newspapers on Friday showed half to two-thirds of the public supported Abe's conservative government, with the stagnant economy the top priority.

Top officials of the new government, sworn in just two days ago after a landslide election victory, say Abe's administration is under pressure to achieve quick results.

"(Public support) will drop if speculation mounts that we are unable to deliver," Akira Amari, the minister in charge of reviving the economy, told a news conference after a Friday morning cabinet meeting.

But many economists warn Abe's emphasis on stimulus, rather than underlying structural reforms to boost competitiveness, may have only short-term effects and could worsen bloated public debt, the worst among the industrial nations.

PRESSURE TO PERFORM

The government is keeping up pressure on the Bank of Japan (BOJ) to step up its monetary stimulus, even after it loosened policy in December for the third time in four months. Finance Minister Taro Aso said he was paid a courtesy visit by BOJ Governor Masaaki Shirakawa on Friday in which the two agreed to hold talks on issues including coordinating policy. Abe has threatened to change the law which guarantees the central bank's independence if it does not pursue more aggressive easing.

Potentially adding more pressure on the BOJ was Japanese factory output data on Friday that fell a steeper than expected 1.7 percent in November, more than triple the median market forecast for a 0.5 percent drop. That followed a 1.6 percent

gain in October, the first rise in four months. Japanese manufacturing activity also put in a bleak performance in Friday's Markit/JMMA Japan Manufacturing

Purchasing Managers Index (PMI) for December, which declined at its fastest pace in more than three years. Japan's economy has slipped into a mild recession, hurt by

weak global demand and slumping sales to China after a diplomatic row over disputed isles.

Analysts expect growth to pick up early next year, although any recovery will likely

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