Abenomics: Improving Japanese Data Adds Weight to Shinzo Abe's Radical Policies

A fresh collection of favourable data from the Japanese economy add to the signs that Prime Minister Shinzo Abe's radical policies - dubbed "Abenomics" - are moving Japan in the right direction.

Inflation, industrial output, employment and income figures from the Japanese economy have all upticked.

Japan's core consumer price index (CPI), which excludes food products, rose by 0.7% in July, compared to a 0.4% increase in June. That was the fastest pace of price rise in nearly five years. Economists expected prices to increase by 0.6%.

The rise in consumer prices was primarily down to higher fuel import bills due to the weak yen, rather than increased consumption.

A refined measure of inflation, which excludes energy prices along with food, known as the core CPI declined 0.1% year-on-year in July, but reading was better than June's -0.2%.

Besides energy prices, a broad spectrum of other goods also contributed to the rise in overall prices.

"There have already been media reports of price hikes through to the autumn for wheat, milk, and alcoholic beverages, and we think food prices are likely to continue to push up overall prices," economists at Nomura Bank said in a research note.

Deflation, or falling prices, has been a major block to growth of Asia's second-largest economy. Continued deflation causes consumers to postpone purchases in the hope for cheaper deals, hurting overall economic activity.

Prime Minister Abe and the Bank of Japan have unveiled a series of massive fiscal and monetary stimulus to contain deflation and boost economic growth. The "Abenomics" measures have so far helped the economy, despite a few shortcomings.

Industrial Output, Employment and Income

According to separate official data, unemployment in the country declined to its lowest level since late 2008, factory output improved with better outlook and workers' income increased.

Industrial production continued to expand for the sixth consecutive month in August with the manufacturing purchasing managers' index (PMI) rising to 52.2, up 1.5 point from the previous month. Any reading above 50 indicates an expansion in the sector.

In addition, the unemployment rate declined for the second straight month in July to 3.8%, the lowest level since October 2008. Meanwhile, household spending edged up in the year to July and wage-earners' incomes rose for the fifth straight month in July, increasing by 1.3% year-on-year.

Domestic demand is also resilient in the country, strengthening the case for a planned sales tax increase in the country.

"Although overseas demand appears somewhat weak, we expect production activity to be underpinned by solid domestic demand for the time being, against a backdrop of economic stimulus and rush demand ahead of a consumption tax hike," said Nomura Economists.