Japan economy: Latest data underlines weakness

Demand for some Japanese products has slowed in key markets resulting in a dip in its exports

Japan has reported weak economic data, underlining the challenges the new government faces in reviving growth in the world's third-largest economy.

Industrial output fell in November as demand for exports continued to slow.

Consumer prices also dipped, indicating that deflation continues to remain a hurdle in boosting domestic demand.

Japan has been seeking to spur domestic demand to offset the decline in exports, which have fallen for six months in a row, and sustain growth.

'Fully ingrained'

Japan has been battling with deflation or falling consumer prices for many years.

It has hurt attempts by Japanese policymakers to boost domestic consumption as consumers and businesses tend to put off purchases in the hope of getting a cheaper deal later on.

According to the latest data, the core consumer prices index, which excludes fresh food, fell 0.1% in November, from a year earlier.

"This is a clear indication that deflation is really ingrained in Japanese economy and it is inevitable that the central bank will have to do something to tackle it," Martin Schulz of Fujitsu Research Institute told the BBC.

Japan's central bank, the Bank of Japan, is already under pressure from new Prime Minister Shinzo Abe to take steps aimed at tackling deflation.

Mr Abe has called upon the bank to raise its inflation target to 2% - double its current target.

During his election campaign Mr Abe had also suggested that the central bank should print "unlimited" yen to help stoke an increase in consumer prices.

Analysts said the latest dip in consumer prices may see further pressure being put on the central bank and that the bank may introduce some measures soon..

"It is highly likely that it will react in January," said Mr Schulz.

"The Bank of Japan may be more aggressive in its monetary easing and is also likely to raise its inflation target, which will be a clear indication that it will continue to act in the near future."

Factory output turnaround?

Meanwhile, the Ministry of Economy Trade and Industry said that industrial production fell 1.7% from the previous month. Compared with the same month a year earlier, it was down 5.8%.

Industrial output has been hurt by a dip in demand for Japanese exports from key markets such as eurozone and China.

The ongoing debt crisis in eurozone has hurt shipments to the region, while sales to China have been hurt by a territorial dispute between the two countries.

The strength of the Japanese currency over the past few months has only made matters more difficult for Japanese exporters their goods became more expensive for foreign buyers.

However, the yen has seen a significant drop in recent weeks, falling more than 10% against the US dollar since October.

Analysts said that the weak currency was likely to help revive growth in the export sector, which in turn will help boost factory output.

"Industrial production will be helped by the weaker yen as many leading manufacturers rely heavily on overseas sales," said Mr Schulz of Fujitsu Research Institute.

"There might be turn around as early as next month," he added.