My finance view

China’s economy is showing some signs of improvement, but a big fall in wholesale prices in Japan suggested the world’s second-largest economy was sliding back toward deflation.

A jump in China’s industrial output last month, along with a record rise in new lending, gave further credence to the idea that the bottom of the worst global crisis since the Great Depression may not be far away.

The solid data lifted the Chinese yuan, as well as stocks and copper prices in Shanghai, leading Asian equities higher.

“It does seem that confidence is slowly growing among investors that the worst may be over for the global economy, and this will help boost commodities and other markets,” said Hideyuki Ishiguro, a supervisor at the investment information section of Okasan Securities in Japan.

China was planning a new economic stimulus package targeted at boosting consumption, the China Securities Journal reported on Monday, citing a senior official of the State Information Center, which is affiliated with the country’s top planning agency.

In the latest sign that Beijing’s efforts to revive the economy were beginning to bear fruit, new loans and money supply growth surged to record highs in March.

Industrial output growth picked up to 8.3 percent in March from a record low of 3.8 percent in the first two months of the year, according to comments from Premier Wen Jiabao at the weekend loan till payday.

But the picture was not all rosy for China, which needs economic growth of around 8 percent to keep its massive and growing workforce employed.

An adviser to China’s central bank said the economy was unlikely to hit a bottom soon, while the outlook for fiscal revenue in the coming months was “not optimistic,” the Ministry of Finance said.

JAPAN EYES DEFLATION

And while things were looking modestly brighter in China, the economic situation in Japan remained bleak.

Wholesale prices are falling at their fastest rate since 2002, March figures showed on Monday, as weakening domestic demand on top of falling commodity prices drives Japan toward its second bout of deflation this decade.

With interest rates already almost at zero, analysts say the Bank of Japan has limited weapons to fight deflation in the country’s worst recession since World War Two.

“The BOJ has reached its limit in terms of conventional monetary policy moves,” said Norihiro Fujito, general manager at Mitsubishi UFJ Securities.

“If prices continue to slide, the BOJ may need to expand its government bond buying, and move toward quantitative easing.” 

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