Bloomberg News

Japan Factory Output Falls as Global Slump Hampers Rebound

January 04, 2012

(Updates with economist’s comment in fourth paragraph.)

Dec. 28 (Bloomberg) -- Japan’s industrial production declined in November as the strong yen and slowing overseas demand hamper the nation’s recovery from the March disaster.

Factory output fell 2.6 percent from October, when it rose 2.2 percent, the trade ministry said in a report in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg News was for output to decrease 0.8 percent.

Bank of Japan Governor Masaaki Shirakawa said last week that the European debt crisis is the biggest risk for Japan’s economy. Manufacturers including Toyota Motor Corp. and Nissan Motor Co. are also under threat from a yen that is hovering close to a postwar high against the dollar.

“The decline in the dollar against the yen has been affecting corporate profits very significantly and that decline will generally depress corporate expenditure,” Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd., said before the report. “Industrial production is unlikely to recover to” levels seen before the 2008 global financial crisis, she said.

Thailand’s worst flooding in almost 70 years also contributed to the decrease in production, crippling the output in Southeast Asia of Japanese companies such as Sony Corp. and Honda Motor Co.

The government has approved four supplementary budgets since the March 11 earthquake and tsunami, worth around 20 trillion yen ($257 billion), for the rebuilding of devastated areas. It will also create a separate budget account for the fiscal year starting April 1 to pay for reconstruction.

Exports Falling

Recent data suggest the recovery may be stalling. Exports fell for the second straight month in November from a year earlier and capital spending in the third quarter dropped 9.8 percent. Large manufacturers are also more concerned about their business prospects, with the Bank of Japan’s Tankan quarterly index of corporate sentiment falling to minus 4 this month. A negative figure indicates that pessimists outnumber optimists.

The financial situation in the euro area, Japan’s third- biggest export destination, also shows no sign of improving, with 10-year Italian government bonds still hovering around 7 percent. Fitch Ratings on Dec. 17 lowered the credit outlook of Spain, Italy and AAA-rated France, citing Europe’s failure to find a “comprehensive solution” to its crisis.

Japan’s Finance Minister Jun Azumi said Dec. 24 that the appreciation of the yen is hurting exports, and has indicated he is prepared to sell the currency in the foreign-exchange markets. The Finance Ministry said last week that it plans to raise the issuance limit for bills to fund intervention to an unprecedented 195 trillion yen.

Japan’s top stories: TOP JN <GO> Global economy watch: GEW <GO> World currency ranker: WCRS <GO> Quarterly growth graph: JGDPQGDP <Index> GP <GO>

--Editors: Lily Nonomiya, Ken McCallum

To contact the reporter on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

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


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