The 3.9 percent rise was weaker than economists’ median 4.5 percent estimate and marks a slowdown from a 6.2 percent jump in May. Manufacturers expect output growth to slow further in July, although their forecasts topped market estimates, government data showed on Friday.
The country’s main price gauge rose in June for a third straight month, yet underlying prices and consumption remained sluggish, signaling Tokyo still has a long way to go in its battle with deflation.
Japan’s purchasing managers’ survey for July showed manufacturing activity picking up to the highest level in five months, but new export orders slipping to a three-month low. The batch of data supports the Bank of Japan’s view that the economy is healing faster than initially expected and will start growing later this year, but that a strong yen and US and European debt debacles pose a risk to an export-led recovery.
“The data confirms production is set to recover to pre-quake levels this autumn although there are short-term risk factors such as weakening US growth and the slowing Chinese economy,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
“The yen’s strength, if sustained for a long time, could dampen production in the longer term by hurting corporate earnings and thus capital expenditure. The government and the Bank of Japan may be prompted to take action in such a case.”
Fears that a deadlock in talks to raise the US debt ceiling may lead to a credit downgrade have sent the dollar to four-month lows below 78 yen this week, prompting Japanese exporters to call for government intervention.
Japanese economists also worry that political wrangling over the fate of Prime Minister Naoto Kan, under fire for his handling of the crisis at the tsunami-crippled Fukushima nuclear power plant, could delay reconstruction spending needed to help the economy recover from a slump triggered by the March disaster.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 2.2 percent in July and 2.0 percent in August.
The Bank of Japan, which reviews its policy on Aug. 4-5, has linked its exit from ultra-easy monetary policy to a lasting return to moderate price increases and sustained economic recovery.
Core consumer prices, which include oil products but exclude volatile prices of fresh produce and seafood, rose 0.4 percent in June from a year earlier, a tad less than the market forecast of a 0.5 percent annual increase.
The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the US, rose 0.1 percent in the year to June.
But the BOJ has stressed that price rises had to reflect healthier demand and economic growth rather than rising commodity and energy costs, which work to dampen economic activity.
The seasonally adjusted unemployment rate rose to 4.6 percent, above economists’ forecast for a steady 4.5 percent reading.
