Japan manufacturing slows, but trend remains good

TOKYO (AP) Japanese manufacturing slipped in August, but the government said Monday that output is expected to accelerate in coming months. The overall improvement since late last year could lend support for Prime Minister Shinzo Abe's proposal to raise the sales tax in April.

Industrial output fell 0.7 percent from the previous month after a 3.4 percent jump in July, according to the Ministry of Economy, Trade and Industry. But the ministry also said manufacturing "shows signs of picking up at a moderate pace" and that it expected to jump 5.2 percent in September and grow more in October.

The Japanese government has long planned to raise the sales tax from 5 percent to 8 percent in April to reduce its massive debt and meet higher social security costs as the country's population ages. Abe's Cabinet is expected to agree formally Tuesday to move forward with the plan.

The recovery in manufacturing is "a good sign of a sustained recovery and good enough (for) Abe to move ahead with the sales tax hike," said Junko Nishioka, chief economist at RBS Securities Japan.

Any tax hike risks derailing the modest economic recovery that Abe has engineered with the Bank of Japan since taking office in December. The hope is that the economy will be strong enough to withstand a tax increase next year.

In one encouraging sign, retails sales rose 1.1 percent in August from the same month a year ago, the ministry said.

A key economic report, the Bank of Japan's quarterly "tankan" survey of business sentiment, is due out Tuesday before the Cabinet meets.

Japan's economy, the world's third-largest, has generally been improving. In the second quarter, it expanded at an annual pace of 3.8 percent on higher spending on private and public investment.