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Wednesday, December 29, 2010

Japan Outlook Production Recovery Brightens

Japan Outlook Production Recovery Brightens : TOKYO—Japan's industrial output rose for the first time in six months in November and is expected to gain more in the near future, the government said Tuesday, soothing concerns that continuing deflationary pressures will lead to a sharp economic slowdown. But household spending fell unexpectedly and the unemployment rate stayed unchanged in the month, suggesting the better output was due to external factors while domestic demand remains weak.

Any signs of improvement in Japan's economic prospects will be good news for the administration of Prime Minister Naoto Kan, as its planned policy steps alone are considered inadequate to jump-start the economy or improve a perilously low public approval rating of around 25%.

The government let measures to support demand for fuel-efficient cars expire in September, and it cut incentives for energy-saving electric appliances in half in December. But economists said recent efforts by Japanese companies to scale back output in line with shrinking government support may have run their course.

Industrial production rose a seasonally adjusted 1% in November from the previous month, aided by increased output of automobiles, according to data from the Ministry of Economy, Trade and Industry. The result matched the forecast of economists polled by Dow Jones Newswires and the Nikkei.

The survey also showed that manufacturers—which make most of Japan's industrial goods—expect output to grow 3.4% in December and 3.7% in January.

"The forecast figures are very strong," likely reflecting exporters' hopes that growth in Japan's key trade partners, including the U.S. and China, will rebound next year, said Satoru Ogasawara, an economist at Credit Suisse. "It's possible that the current economic weakness won't develop into a major contraction and will just end as a mild adjustment."

After cutting output around September, auto makers are starting to raise production again as overseas demand picks up, a trade ministry official said, adding that robust demand for flat-panel televisions at home and mobile phones overseas has led to higher production of electronic parts.

The sharp increase in shipments of TVs and other products contributed to a 8.2% drop in the inventory-shipment ratio—the largest decline since June 2009—the official said.

In separate data released Tuesday, the trade ministry also said that strong home appliance sales propped up retail sales in November, with overall sales growing 1.3% from a year earlier.

Analysts expect Japan's economy to contract about an annualized 1% to 2% in the fourth quarter, and then recover slightly or stay flat in the first quarter. The economy grew 4.5% in the third quarter.

The government recently announced a record 92.412 trillion yen ($1.115 trillion) budget and tax measures—including a five-percentage-point cut to the 40% corporate tax rate—for the fiscal year starting in April. But economists say the spending plan lacks new ideas and the tax cut is too small.

Exports will likely remain the main growth driver in any case, analysts say, as domestic demand remains on shaky footing, causing growth-limiting price declines to continue.

Other data from the Ministry of Internal Affairs and Communications showed Tuesday that the core consumer price index fell 0.5% from a year earlier in November. The decline followed the previous month's 0.6% drop, and was the 21st straight month of decrease.

The decline in core CPI, which excludes excludes volatile fresh food prices and is the central bank's main measure of price trends, was better than economists' forecast for a 0.6% drop, but analysts maintain more help from overseas demand is needed to fully reverse falling prices.

The reading "is still far from BOJ's target of 1%" growth, said Seiji Shiraishi, chief economist at HSBC Securities.

The Internal Affairs Ministry also said household spending fell a priced-adjusted 0.4% from a year earlier, the second straight month of decrease and confounding economists' forecast for a 0.2% gain. The jobless rate stayed unchanged at a seasonally adjusted 5.1% in November, the ministry said.

Given the fact that employment is a lagging indicator for the economy, the strong industrial output through January as projected by the trade ministry won't lead to a job increase in the manufacturing sector until mid-2011, Citigroup economist Jin Kenzaki said. For the latest updates PRESS CTR + D or visit Stock Market news Today

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