Industrial production in Japan fell by 2.6% on a monthly basis in May 2016 and also recorded the sharpest decline since February. The expectations were for a decline of 2.2%, and preliminary data from the end of June showed a decline of 2.3%. The results increase the pressure on the government in Tokyo to introduce more stimulus after the coalition of Prime Minister Shinzo Abe won a partial parliamentary elections over the weekend and guaranteed a stable majority.
The decline in industrial production suggest that demand for exports continues to shrink, which may be partly explained by the appreciation of the yen since the beginning of the year and the weaker activity in trading partners of Japan. In the first quarter of 2016, Japan’s economy expanded by 0.5% on a quarterly basis, as the household consumption was the main driver of growth.
The weak industrial production means that the level of existing incentives do not encourage enough recovery in demand. So the economists expect the institutions in Tokyo to take measures coming months. A number of economists expect the Bank of Japan to announce it is expanding of program for buying bonds or to further lower deposit rate, which is currently -0.1%.
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