Japan s factory output up

April 30, 2009

, TOKYO, Apr 30 – Japan reported on Thursday its first increase in factory output in six months, adding to hopes that the worst recession since World War II may be easing as exports bottom out.

The world\’s second-largest economy entered a severe slump last year as consumers around the world stopped buying Japan\’s cars, high-tech gadgets and other goods, but analysts say there are signs that it may be through the worst.

Factories boosted production by 1.6 percent in March compared with February, after a plunge of around one third since September.

Output is expected to rebound a further 4.3 percent in April and 6.1 percent in May, according to manufacturers\’ forecasts.

"The dawn is breaking in the Japanese economy," said Naoki Murakami, chief economist at Monex Securities. "Production has hit bottom."

Investors welcomed the better-than-expected data, with Tokyo shares soaring 4.0 percent in morning trade.

Japan\’s economy suffered a brutal annual contraction of 12.1 percent in the last three months of 2008 and analysts say this year\’s first quarter could be even worse.

Compared with a year earlier, factory output was still down 34.2 percent in March.

But recent data have suggested the export slump may be easing, even if prospects for a full-fledged recovery appear dim while the global economy remains weak, given Japan\’s heavy dependence on foreign markets.

Analysts note that Japan\’s economy saw plenty of false dawns during its so-called "lost decade" of stagnation and deflation in the 1990s.

While production may have hit a bottom, "it is still uncertain if we can see a sustainable recovery from now on," said Hiroshi Watanabe, an economist at the Daiwa Institute of Research.

"A full recovery in Japan requires strong exports, particularly to the United States. Unless we can see a recovery in the US economy, it is too early to say Japan\’s economy is back on track," he said.

Japan\’s economic downturn was caused almost entirely by a downturn in foreign markets.

As consumers overseas stopped buying Japanese products, companies – particularly automakers such as Toyota – slashed their production to reduce a glut of unsold products.

Having whittled down their stockpiles, the automakers are starting to gradually increase production again.

"Industrial output is set to surge in the second quarter of 2009 as the inventory adjustment process appears to be over," predicted Macquarie Securities economist Richard Jerram.

An emerging economic recovery in China — Japan\’s largest trading partner — as well as Tokyo\’s fresh stimulus spending of about 150 billion dollars are expected to help arrest the economy\’s decline.

But concerns are growing about domestic demand. Consumer spending was sluggish in Japan even before the recession and rising unemployment is expected to make people even more cautious about splurging.

Another worry is that companies are reducing their business investment, which has been another key driver of the economy.

"We think it is (too) early to expect positive growth in the second quarter because of fragile overseas demand and weak household demand in Japan," said RBS Securities economist Junko Nishioka, who expects the economy to start expanding again in the fourth quarter.

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