Japan factory output set to fall as inventories rise, rebound seen
By Stanley White
TOKYO (Reuters) - A raft of indicators due next week is expected to show Japan's industrial output falling in June, labour demand remaining strong, and household spending stalling as the economy adjusts to a higher sales tax, Reuters polling has found.
Industrial output is expected to fall in June as companies slow production because of a build-up in inventories, a Reuters poll showed, but output is expected to rebound as domestic demand gathers strength.
Demand for workers is forecast to remain at the highest rate in two decades, while the jobless rate is expected to remain at the lowest in 16 yeas.
Household spending is seen as likely to fall at a slower annual rate in June as consumers slowly shake off April's sales tax increase, suggesting the economy remains on track to grow in the third quarter.
"Production is in an adjustment phase because demand has been a little weak, but we still expect production to bounce back in the third quarter," said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting Co.
"I would not say that the economy has gone off the rails."
Japan's industrial output is expected to fall 1.2 percent in June, a Reuters poll of 29 economists found.
That would be a reversal from a revised 0.7 percent increase in the previous month as some industries curb production because of rising inventories and falling shipments.
Manufacturers will also release production forecasts for July and August - crucial information needed to determine when production will rebound.
The ministry of economy and trade will issue the data on July 30 at 8:50 a.m.
The jobless rate in June is expected to remain unchanged at 3.5 percent, while the jobs-applicants ratio is seen unchanged at 1.09, pointing to strong labour demand.
Household spending fell was expected to fall 3.8 percent in June from a year ago, slower than an 8.0 percent annual decline in the previous month, according to the poll of economists.
Retail sales are seen down 0.5 percent from a year earlier, little changed from a 0.4 percent decline in the year to May.
The data on jobs, spending and sales will be released one day earlier than the factory output data.
Analysts expect the economy to contract in the second quarter after an increase in the sales tax in April, with a Reuters poll conducted in July projecting a 1.4 percent quarterly drop.
The economy is expected to grow 0.4 percent in the current quarter, however, as consumer spending recovers from the tax hike and government stimulus spending supports domestic demand.
(Editing by Eric Meijer)
