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Tags: Japan | Industrial | Output | Recovery

Japan's Industrial Output Gains Slow, Stirring Recovery Doubts

Thursday, 31 May 2012 09:29 AM EDT

Japanese factory output rose in April at a slower pace than expected, in a discouraging sign that China's slowing economy and Europe's debt crisis will weigh on Japan's fragile recovery.

The data may keep the Bank of Japan under pressure to maintain its ultra-easy monetary policy to keep the economy on a recovery path after it returned to growth in the first quarter from a year-end lull.

Still, the central bank is expected to avoid taking further easing measures for now unless market jitters over the eurozone's woes trigger a spike in the safe-haven yen.

The 0.2 percent increase in production was much slower than a 1.3 percent rise in March and less than the median estimate for a 0.5 percent gain, trade ministry data showed on Thursday, as some manufacturers curbed production due to an increase in inventories.

Manufacturers said they expect output to decline in May and rebound in June, but economists said the risks from Europe's debt crisis and a rising yen are reason to be cautious about the pace of Japan's recovery.

"Growth was weaker than expected, reflecting sluggish demand for IT-related goods worldwide, particularly in China," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

"The forecast for May is worrisome as that would mean production would fall to levels seen last summer, and the expected rebound in June is also weak. All of this stems from a poor export environment."

The dollar fell to a 3-1/2 month low of 78.86 yen on Thursday as investors sought shelter from the euro-zone storm in the safe-harbor yen, triggering a warning from Finance Minister Jun Azumi that he was closely watching markets for any excessive moves in the Japanese currency.


Manufacturers surveyed by the ministry expect output to fall 3.2 percent in May and then increase 2.4 percent in June, the data showed.

Japan's economy is headed for a moderate recovery as rebuilding from a record earthquake in March 2011 gets into full swing, and government subsidies for low-emission vehicles support demand for automobiles.
In a sign the recovery was broadening, wages rose for the third straight month in April and overtime pay, a barometer of strength in corporate activity, gained the most in more than a year.

But slowing growth in China, Europe's debt crisis and the persistent strength of the yen are clouding the outlook for the export-reliant economy.

China, the world's second-largest economy and Japan's biggest trading partner, is on course this year to grow 8.2 percent, its slowest pace since 1999, according to a consensus forecast of investment bank economists in a Reuters poll.

Slowing Asian demand for smartphones and game machines is starting to weigh on Japanese chip and electronic parts output, which fell 7.8 percent in April to mark the second straight month of declines, the data showed.

"The yen is strengthening but that doesn't immediately change the outlook for Japanese output. More crucial is final demand in China, as Asia-bound exports have yet to show signs of picking up," said Junko Nishioka, chief economist at RBS Securities in Tokyo.

The BOJ is becoming increasingly convinced of Japan's recovery prospects and hopes that firm domestic spending, due partly to government subsidies for low-emission cars, will offset the slowdown in overseas demand.

Indeed, output of cars and other transport machinery rose 6.5 percent in April. But inventories of these goods also grew 11.7 percent, and manufacturers in the sector project output to slump 13.6 percent in May, a sign the stimulus-driven boom may have peaked.

"For some models, automakers appear to have finished stocking up. Carmakers want to minimize the damage (from a slump in sales) after the subsidies expire," said a trade ministry official who briefed reporters on the data.

The subsidies for low-emission cars will expire when money set aside for them runs out, which analysts say could be anytime during the summer or autumn of this year.

© 2023 Thomson/Reuters. All rights reserved.

Thursday, 31 May 2012 09:29 AM
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