Japan Industrial Output, Retail Sales Grow Less Than Forecast; Tokyo Inflation Rises

(RTTNews) - Japan's industrial production and retail sales registered weaker-than-expected growth in November and core inflation in the capital came in above the 2 percent target, boosting expectations for an interest rate hike in the near-term.

The Ministry of Economy, Trade and Industry on Friday reported that industrial production expanded at a faster pace of 3.0 percent in October and marked the second consecutive increase. However, the rate was weaker than the expected growth of 3.8 percent. Output was up 1.6 percent in September.

The METI said industrial production fluctuates indecisively. According to the Survey of Production Forecast in Manufacturing, production is expected to fall in November and December.

In October, retail sales grew 1.6 percent from a year ago, which was more than double the 0.7 percent growth posted in September, the METI said in a separate report. Still, this was slower than the 2.1 percent forecast.

Tokyo consumer price inflation advanced to 2.6 percent in November from 1.8 percent in October, the Ministry of Internal Affairs and Communications said today. Core inflation that excludes fresh food climbed to 2.2 percent from 1.8 percent.

Economists at Capital Economics said consumer prices are gaining renewed momentum after the lull in the middle of the year.

With the yen set to remain around current levels, core goods inflation is unlikely to slow as strongly as anticipated. Moreover, services inflation is expected to remain elevated as next year's spring wage negotiations will likely result in another large pay hike.

Economists said inflation is set to average 2.7 percent next year, which was up from the previous forecast of 2.0 percent. This would prompt the central bank to lift rates further towards neutral level and the BoJ's policy rate will reach 1.25 percent by mid-2026.

Elsewhere, the Ministry of Internal Affairs and Communications reported that the jobless rate rose marginally to a seasonally adjusted 2.5 percent in October from 2.4 percent in September.

The number of unemployed decreased 50,000 from the previous year to 1.7 million.

Another report showed that the decline in housing starts worsened more than expected in October. Housing starts were down 2.9 percent on year after falling 0.6 percent in September, the Ministry of Land, Infrastructure, Transport, and Tourism said. Economists had forecast a 2.0 percent annual fall.

Construction orders received by 50 big contractors surged 44.6 percent annually, in contrast to the 21.3 percent decrease in September.