Research Dept. News
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Monthly Report, num 357 - May 2012
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International review - Japan
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Japan: reconstruction against deflation
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Japan expects an expansionary first quarter.
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The Japanese economy expects a relatively robust first quarter in 2012, after having ended 2011 poorly. The growth forecast for the whole of 2012 is 1.7%. The recent initiative by the Bank of Japan to establish an explicit inflation target of 1%, accompanied by a round of quantitative easing totalling 10 trillion yen (2.1% of GDP), could be helping the yen to depreciate (which has lost 6.8% against the dollar since last September) and to strengthen economic recovery.
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At the same time as these expectations of growth, industrial production has also improved over the last few months, in spite of the slight decline in February. The general index is 4.2% below the level of February 2011, prior to the earthquake and tsunami, after having lost a total of 16.2%. The industrial production of consumer goods has posted even better figures, now back at the level of February 2011. Business sentiment is still one of caution, however, with a Tankan index for large manufacturing firms repeating a level below 4.0 points in the first quarter, corresponding to low growth.
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Industrial production picks up and comes close to levels prior to the tsunami.
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But the real task yet to be tackled by the Japanese economy is to put an end to deflation, as consumers have now become accustomed to ever-decreasing prices. However, the global rise in energy prices, exacerbated by attempts to denuclearize the country, are pushing up industrial costs, which are being passed on to consumer prices. February's CPI increased by 0.3% year-on-year, the largest since December 2008. Similarly, the core CPI, the general index without energy or food, posted its second month-on-month rise, reducing its year-on-year rate of decline to 0.5%.
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Prices rise for the first time since 2008, while the trade deficit hits another peak.
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The reconstruction work, higher energy bills and the slowdown in world demand have ensured the continuity of the trade deficit which, in the last 12 months up to March, reached a record high of 4.7 trillion yen. March's 1.2% growth year-on-year in exports contrasts with the 6.3% rise in imports.
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