Japans economy sputters; MPs want BoJ to do more

Written by Reuters | Tokyo | Updated: Aug 1 2010, 04:49am hrs
Japan suffered the biggest fall in factory output in more than a year in June and manufacturers see more cuts in July, boding ill for the fragile economic recovery in the face of a strong yen and weakening overseas demand.

In a sign of growing concern about Japans economic outlook, a group of ruling party lawmakers renewed calls for the Bank of Japan to target inflation and weaken the yen with monetary policy to help an economy mired in deflation. Core consumer prices fell in annual terms for the 16th straight month in June, prolonging a spell of deflation that threatens to derail recovery by encouraging consumers and businesses to put off spending. The ruling Democratic Party is unlikely to adopt in full suggestions from the group composed mostly of junior lawmakers, but government and Opposition MPs may join forces in calls for more central bank action.

The government is likely to keep pressuring the BoJ for more easing due to its tight fiscal conditions, said Yuichi Kodama, economist at Meiji Yasuda Life Insurance. The government coalition has promised to beat deflation in the next fiscal year starting in April but its hands are tied by public debt that is nearly twice the size of the economys $5 trillion annual output.