TOKYO, July 10 — Japanese price data today showed the world's No. 2 economy was still struggling to find its feet and contrasted with encouraging US jobs figures and news from Germany that briefly lifted global stocks and commodities.
Japanese wholesale prices fell a record 6.6 per cent in June from a year earlier, reinforcing fears that the economy was poised for a second, possibly damaging spell of deflation this decade.
The data follows a weekly US jobs report that showed a sharp drop in unemployment claims and comments from a senior German government official who told Reuters that Europe's biggest economy may have emerged from recession in the second quarter.
The news helped lure investors back to riskier assets yesterday, helping Wall Street stocks end a touch higher and snapping oil's six-day losing streak, while curbing the appeal of safe-haven government debt.
Asian shares, however, were unable to make any headway today, with the Nikkei average barely changed after yesterday's 1.4 per cent drop. Stocks elsewhere in Asia-Pacific were also virtually flat, reflecting caution ahead of quarterly earnings reports and economic data.
Seoul shares fell after a brief lift following Bank of Korea's estimate that Asia's fourth largest economy grew at its fastest rate in 5½ years in the second quarter. The central bank also raised its full year forecast to a 1.6 per cent contraction from 2.4 per cent seen earlier.
Since the first quarter of this year, when the first signs began emerging that the world's worst recession since World War Two might have already hit the bottom, markets have been on the lookout for any tangible signs of actual recovery.
But so far economic statistics and company reports have been mixed, blowing hot and cold on the idea that a recovery was round the corner.
The latest data fit that pattern.
Last week's bigger-than expected drop in the number of US workers filing new claims for jobless benefits came with a caveat that the numbers were distorted by an unusual pattern of layoffs in the automotive industry, which amplified the decline.
The jobs report also coincided with news that June sales fell for most US retailers as the plunging job market and cool, rainy weather dampened interest in summer shopping, sparking fresh concern about the back-to-school season.
China's June trade figures, due within the next few days, are also expected to be the source of similar qualified optimism — showing exports and imports still declining by more than 20 per cent from a year earlier, but at a markedly slower rate than in May.
Even the improved German outlook that followed this week's reports showing a bigger-than-forecast bounce in industrial orders and output and a tentative recovery in exports came with a health warning.
"This isn't an upswing yet, it's a normalisation after the big economic slump," the official said, speaking on the condition of anonymity.
Such caution was echoed by leaders of the Group of Eight industrial nations meeting in Italy this week, who agreed it was too early to cut off economic aid — despite deep interest rate cuts and an estimated US$5 trillion (RM17.5 trillion) in public spending.
China took advantage of the forum yesterday to push again its idea of reforming the world reserve currency system to end the dollar's dominance, unexpectedly backed by France, though Britain said the debate should be left for the long term.
International Monetary Fund managing director Dominique Strauss-Kahn also used the opportunity to renew the IMF warnings that even as the world economy was on track for a modest recovery next year it would be premature to tighten policy again.
In fact, some countries might need more stimulus, Strauss-Kahn told Reuters on the sidelines of the G8 summit.
In Japan, the wholesale price data reinforced market view that the Bank of Japan was likely to extend its emergency corporate funding scheme beyond its September deadline.
While declines in oil and raw materials costs weighed on wholesale prices, falling final goods prices showed weak domestic demand was also to blame as companies curb capital spending and slash jobs following a record contraction in the first quarter. "Today's data should help the Bank of Japan reinforce its cautious stance on the economy," said Tetsuro Sawano, senior fixed income strategist at Mitsubishi UFJ Securities. — Reuters
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