Japan's industrial output rebounds

Tuesday June 30, 2009

TOKYO: Japanese industrial output jumped 5.9 percent in May as car and electronics production pulled out of a deep slump, although an inventory build-up in some sectors suggested the rebound would soon lose momentum. Manufacturers forecast output growth to slow to 3.1 percent in June and to just 0.9 percent in July amid an absence of a convincing global recovery.

"Output has been making big gains since February as manufacturers try to make up for overshoots in inventory cuts last year, but final demand is still weak and we expect output to dip again once inventory has been restocked," said Junko Nishioka, chief economist Japan at RBS Securities.

"Japan's economy won't bounce back in the true sense until the global economy, and especially the US economy, recovers. And that won't be until the second half of this year or early next year." Japanese factories can expect little help domestically, with rising unemployment and weak retail sales pointing to tepid domestic spending.

Inventories have dropped for five months in a row as the collapse of US investment bank Lehman Brothers last September sent Japan's key export markets plunging, prompting huge production cuts. Car production jumped 24.8 pct in Japan in May with inventories rising for the first time in four months, while electronic parts production rose 10.5 percent.

The 5.9 percent rise in overall industrial output matched the gain seen in April, which was the biggest rise since 1953, but lagged the median market forecast for a 7.0 percent rise.

Overall shipments picked up 4.5 percent in May, the fastest monthly rise since 1992 and inventories fell to their lowest level since 2004, but the inventories-to-shipments ratio edged up 0.1 percent for its first rise in three months. A decline in shipments of capital goods and general machinery suggested that companies still lack an appetite for spending on plant and equipment, said Takeshi Minami, chief economist at Norinchukin Research Institute.

Economists expect output to rise for a few more months as Japanese manufacturers rebuild stocks after cutting inventories more aggressively than rivals in other countries. That should help to push the Japanese economy out of its deepest recession in modern times, with growth of 0.4 percent seen in April-June after four straight quarters of contraction, Japan's longest recession on record.

The Bank of Japan's tankan business survey due out on Wednesday is likely to show the mood among big Japanese manufacturers improving from record lows a quarter ago. Still, the sharp recession leaves huge slack in factories and employment and analysts question whether the recovery is sustainable.

In a sign of weakness in Japan's economy, data last week showed Japanese consumer prices fell a record 1.1 percent in the year to May, with growing signs of falling demand pushing the economy deep into its second spell of deflation this decade.


(Reuters)