Bloomberg News

Japan’s Factory Output Rises at the Fastest Pace Since 1953

June 29, 2011

(Updates with U.S. manufacturing in eighth through 11th paragraphs.)

June 29 (Bloomberg) -- Japan’s industrial production rose at the fastest pace in more than 50 years, led by carmakers as they restored operations at plants after a record earthquake and tsunami on March 11.

Factory output increased 5.7 percent in May from April, the biggest gain since 1953, the Trade Ministry said in Tokyo today. The median estimate of 30 economists surveyed by Bloomberg News was for a 5.5 percent gain.

Output in the transportation industry advanced 36 percent from the previous month as automakers including Toyota Motor Corp. and Nissan Motor Co. restarted production lines. Manufacturers said they plan to increase output 5.3 percent this month and 0.5 percent in July, according to a survey of companies included in today’s report.

“The report shows that the auto industry is a strong driving force” in boosting production, said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The post-quake shock is running its course and production is undergoing a V-shaped recovery.”

The output report follows data this week showing that retail sales rose 2.4 percent in May from April, in a sign that consumer demand is rebounding.

Auto Output

The gain in transport equipment output was the biggest since comparable data became available in 1998. Carmakers are hiring temporary workers, signaling the industry’s recovery from the earthquake. Toyota Motor, the world’s biggest carmaker, said last week it would employ as many as 4,000 workers from mid-July as it prepares to ramp up production in October. Nissan has said it has begun hiring as many as 200 temporary workers to help boost output.

“The recovery has been fast,” Nissan’s Chief Executive Officer Carlos Ghosn said on June 22. “Today we are near normal production levels” in Japan, he said.

Manufacturing in the U.S. may rebound in similar fashion after an interruption of parts from Japan restrained factory activity, according to the Federal Reserve. Strength in the industry may help rekindle optimism that the expansion in the world’s largest economy will accelerate after a first-half slowdown.

Fed policy makers said in a statement after their June 21- 22 meeting that the recent cooling in economy growth was partly due to “factors that are likely to be temporary,” including the “supply chain disruptions association with the tragic events in Japan.”

ISM Manufacturing

A report in two days may show the slowdown in U.S. manufacturing extended into June. The Institute for Supply Management’s factory index is projected to drop to the lowest level since August 2009, according to a Bloomberg survey of economists.

“We are confident that any further weakness in the ISM will be temporary, owing to the earthquake/tsunami related Japanese supply disruptions,” Deutsche Bank Securities Inc. economists led by Joe LaVorgna said in an e-mail to clients.

The yen traded at 81.00 per dollar at 11:57 a.m. in Tokyo from 81.06 before the report was published. The Nikkei 225 Stock Average gained 1 percent, led by exporters. Shares of carmakers including Toyota and Honda Motor Co. rose.

Japan’s government last week raised its assessment of the economy for the first time in four months as production and exports show signs of recovering from a slump caused by the disaster. The Bank of Japan also upgraded its view of the economy this month.

Machinery Orders

Not all Japanese data show signs of improvement. Machinery orders, an indicator of future capital spending, dropped for the first time in four months in April. Exports fell more than economists projected last month from a year earlier, while on a seasonally adjusted basis the shipments increased 2.5 percent in May from April.

“Production by the manufacturing industry will likely return to the pre-quake level by summer, but the risk will be a slowdown in the recovery pace after then,” Hiroshi Shiraishi, an economist at BNP Paribas SA in Tokyo, said before the report. “Power supply problems could continue over several years and uncertainties surrounding the overseas economy are growing.”

Analysts expect Japan’s economy to contract around a 3 percent annual pace in the second quarter before returning to growth in the second half of the year, according to the average forecast of 43 economists in a survey by the government- affiliated Economic Planning Association released on June 8.

--With assistance from Minh Bui, Theresa Barraclough, and Makiko Kitamura in Tokyo. Editors: Ken McCallum, Brendan Murray

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To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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