Tokyo - Japanese factory output fell by a worse-than-expected 3.4 percent in February, data showed on Monday, adding to the gloom enveloping the world's third largest economy as it struggles to overcome last year's sales tax rise.
The latest month-on-month figures missed economists' median forecast of a drop of less than two percent and reversed a 3.7 percent rise in January.
The data come days after separate figures showed inflation stalled last month with a key measure of prices flat for the first time in nearly two years - dealing another blow to Prime Minister Shinzo Abe's bid to conquer deflation and revive the sluggish economy.
“Today's figures confirm that the economy slowed in the first quarter of 2015,” Marcel Thieliant from Capital Economics said in a note after the industrial production data were published.
“We stick to our forecast that Japan's GDP will be flat this year rather than expand by 1.0 percent as expected by the consensus.”
Commenting on the factory output data, Japan's industry ministry left its tepid view unchanged.
“Industrial production shows signs of increase at a moderate pace,” it said in the February report.
Some economists pointed to the week-long Chinese New Year holiday as another factor that dampened demand for Japanese imports.
A survey of manufacturers' output projections released with the data suggested their production would fall by 2.0 percent in March before picking up 3.6 percent in April.
But “these forecasts tend to overestimate the future level of output, so the actual results may be even weaker”, Thieliant said.
On Friday, government figures showed that inflation stalled in February, weighed by a plunge in oil rates and weak consumer spending, after Japan limped out of a brief recession in the last quarter of 2014.
The dismal price figures come after Bank of Japan chief Haruhiko Kuroda acknowledged this month that dragging the country out of years of deflation was proving to be “very challenging”, and he warned that inflation may temporarily fall to zero.
While core inflation, excluding volatile fresh food prices, rose 2.0 percent in February, a benchmark measure used by the BoJ that strips out the impact of an April sales tax rise came in flat from a year ago.
That reading was far short of the bank's goal of sustained 2.0 percent inflation and marks the first month of zero growth since May 2013, just after Tokyo launched its high-profile bid to kickstart the economy and conquer deflation.
Inflation is a key gauge of Abe's plan to end years of stagnant or falling prices that have been blamed for holding back economic growth.
While deflation may sound good for Japanese consumers, it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line.
That, in turn, hurts producers and holds back their expansion and hiring plans, which is bad news for the wider economy.
AFP