Japan’s industrial production fell in February, undershooting all forecasts, as the first sales-tax increase since 1997 risks stalling recovery in the world’s third-biggest economy. Output fell 2.3% from the previous month, the steepest drop in eight months, and the trade ministry said in Tokyo today. The median estimate of 28 economists was for a 0.3% gain. A separate gauge of manufacturing fell in March for a second straight month. While the weakness partly reflected disruptions from heavy snowfall, the data showed manufacturers are bracing for a slump in demand following tomorrow’s sales-tax increase. Inventories fell for a seventh straight month, lessening the likelihood of even sharper output cuts as the higher consumption levy pushes the economy into a one-quarter contraction in April-June.
The 3 percentage-point increase in the sales tax is forecast to cause the economy to shrink at an annualized 3.5 percent in the second quarter, before a rebounding grow 2.1 percent in the following three months, according to a separate Bloomberg survey. Prime Minister Shinzo Abe gave the go-ahead for the sales tax increase to help deal with the world’s biggest debt burden, even as he pushes reflationary policies to spur growth and end 15 years of deflation.
Yen weakened against the greenback as Russia and the U.S. sought a diplomatic solution to the crisis in Ukraine, reducing demand for havens. The yen pared its biggest quarterly gain since the three months through September 2012 after U.S. Secretary of State John Kerry and Russian Foreign Minister Sergei Lavrov met yesterday. Japan’s currency weakened 0.4% to 103.22, cutting its advance this quarter to 2%.
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