Japan's Batch of Data Shows Higher Unemployment, Weak Production

Overnight, we got end-of-the month statistics from Japan. While there was a positive report in the form of stronger than expected household spending for the month of June, a rise in the unemployment rate and a drop in industrial production dampened any enthusiasm for the Japanese economy.

The unemployment rate for June unexpectedly rose to 5.3% from 5.2%. That is a seven-month high for the jobless rate. A second report showed that factory output - industrial production - was down 1.5% for the month. Economists had expected a small gain. Consumer prices continued to show negative annual rates. For the country the consumer price index excluding food declined 1% from a year before.

In one positive report household spending did rise 0.5% in June compared to a year ago, following a 0.7% year-over-year decline in May. Expectations had a drop of 0.9% y/y figure. That means consumers were more willing to spend, but if the economy weakens then consumers may cut back spending again.

Japan's economy is expected to show growth slowing to an annual rate of 1.9% in the 2nd quarter, following a sharp 5% rise in the 1st quarter.

The data will increase worries about a slowdown and put pressure on the government for solutions. Recently the Prime Minister has talked more about consolidating Japan's fiscal deficit than stimulative economic growth. There will be increased pressure on the Bank of Japan as well, perhaps in the form of proposals to buy long-term governmetn bonds and target infaltion of 2 to 3 percent.