Japan Factory Output Falls, Dents Recovery Hopes

March 30, 2012
Decline in auto and semiconductor output leads to unexpected 1.2 percent dip.

Japan's factory output fell unexpectedly in February, data showed March 30, suggesting the recovery in the world's number three economy remained anaemic.

The fall confounded expectations for a third straight increase, although officials pointed out that manufacturers expect the slowdown to be temporary.

The 1.2 percent one-month decline in industrial production was triggered largely by slower automobile and semiconductor output, surprising observers who had tipped a 1.3 percent gain.

"The outcome was unexpected, as industries such as the electronic machinery industry that were supposed to show a gain in output turned out to be negative," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.

"The data confirm that the pace of recovery in production is slow, even though the upward momentum remains intact," he added.

The latest figures come despite Japanese firms revving up production in recent months as they recover from last year's quake-tsunami disaster and record flooding in Thailand, which disrupted production for manufacturers with plants there.

Japan's factories posted a revised 1.9 percent output increase in January and 3.8 percent in December.

And on Friday, the economy, trade and industry ministry said a survey of producers pointed to an expected 2.6 percent factory output rise in March and another increase of 0.7 percent in April.

"In general, output is recovering. You can say it's taking a breather after strong January figures," a ministry official said.

Officials have seized recent data indicating the economy was on the way to recovery, including a $400 million trade surplus in February -- the first in five months -- and revised figures showing GDP contracted less than first thought in the last quarter of 2011.

Japan has announced a fresh plans to kickstart the economy as it struggles to fight its way out of decades of sluggish growth, including a near $25 billion to boost a loan program from the Bank of Japan earlier this month.

That followed last month's decision by the bank to pump $122 billion more into markets that was aimed at combating inflation amid domestic and global uncertainty.

Japan said Friday that core inflation, which excludes volatile food prices, edged up 0.1 percent in February from the same month a year earlier, the first rise in five months.

But the rise in the core consumer price index was due mainly to higher electricity and transportation-related costs, according to the data.

Prices for the Tokyo metropolitan area, an early indicator of trends for the rest of Japan, fell 0.3 percent in March from the same period a year ago, matching forecasts.

Yoshiro Sato, an economist Credit Agricole in Tokyo, added that Japan's fight against deflation was far from over.

The country has been in a deflationary spiral for years, with a series of monetary and fiscal policy measures failing to reverse the trend.

"Although persistently elevated levels of crude oil prices would result in a positive core CPI inflation rate going forward, we maintain our view that there is a persistent underlying deflationary pressure in the economy," Sato said.

However unemployment eased to 4.5 percent in February, just beating forecasts of 4.6 percent, the internal affairs ministry said.

And household spending rose 2.3 percent year on year, beating expectations for a 0.2 percent fall, as government subsidies for fuel-efficient vehicles attracted shoppers.

Copyright Agence France-Presse, 2012

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