News Room - Business/Economics

Posted on 29 May 2009

Japan's Industrial Production Surges Most in 56 Years

Japan's industrial output surged the most in 56 years in April as a rebound in exports helps the economy emerge from its worst recession since World War II.

 

Production rose 5.2 percent from March, the second monthly gain, the Trade Ministry said today in Tokyo. The increase was faster than the 3.3 percent economists estimated, and companies said they planned to boost output in May and June as well.

 

The yen rose on speculation funds will flow into Japan as the economy resumes growing after last quarter's record contraction. Still, output is running at two-thirds last year's levels, saddling manufacturers such as Nikon Corp. with workers they no longer need and driving the jobless rate to a five-year high of 5 percent.

 

"This is not so much a green shoot as it is a green tree," said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. "Optimism on Japan is certainly not misplaced as we look at a reasonably strong quarter of growth in April to June."

 

The yen traded at 96.39 per dollar at 11:34 a.m. in Tokyo from 96.76 before the report was published. The Nikkei 225 Stock Average rose 0.1 percent, heading for its third monthly gain. The gauge has risen 34 percent from a 26-year low on March 10. The yield on Japan's 10-year bond fell half a basis point to 1.475 percent.

 

The increase in production was the biggest since March 1953, a year after the U.S. military occupation ended and as the Korean War was drawing to a close.

 

BOJ's Shirakawa

 

Bank of Japan Governor Masaaki Shirakawa said this week the economy will resume growing this quarter after shrinking a record 15.2 percent in the three months ended March 31. Stimulus spending by governments around the world totaling $2.2 trillion has helped to prop up export markets and Japan's own economic package has buoyed sentiment at home.

 

Demand from abroad is starting to stabilize from the first quarter's unprecedented declines. Exports rose 1.9 percent in April from March, a second monthly gain.

 

Companies are making more cars and electronics to replenish stockpiles they managed to drain during the export slump. Inventories fell 2.7 percent in April, a fourth monthly drop. Businesses surveyed by the Trade Ministry said production will increase 8.8 percent in May and 2.7 percent in June.

 

Blow for Consumers

 

Prospects for consumers were less reassuring.

 

The 5 percent jobless rate is the highest since November 2003, the statistics bureau said today. Job seekers found it harder to secure work as the ratio of positions available to each applicant slid to 0.46, the lowest in a decade, a Labor Ministry report showed. Household spending slumped for a 14th month, a record losing streak.

 

"Japan's economy may return to growth in the second quarter, but looking beyond, there will be strong downside risks," said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. "The deterioration in employment and income conditions will likely become clearer in the months ahead, taking a toll on consumers and the economy."

 

Nikon, a camera maker which is forecasting its biggest loss in 11 years, said this week it will eliminate 1,000 jobs and Nisshin Steel Co. said yesterday it plans to cut 9 percent of its workforce. Analysts predict any recovery will be weak as long as workers' jobs remain under threat.

 

Consumer sentiment has rebounded despite the worsening job market, climbing to a 10-month high after Prime Minister Taro Aso announced a record 15.4 trillion yen ($160 billion) spending package last month.

 

Chinese Stimulus

 

China's $586 billion stimulus plan has been a boon to Japanese manufacturers struggling with depressed sales in the U.S. Goldman Sachs Group Inc. last week raised its ratings of equipment-makers Hitachi Construction Machinery Co. and Komatsu Ltd., citing the prospect of increased business from China, where government spending is driving building investment.

 

"Confidence has turned," said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. "Even if corporate management thinks demand will be sluggish in the medium-to-long term, all of this fiscal support means there's definitely demand in the short term."

 

Government incentives in Europe are also helping sales at carmakers including Mazda Motor Corp. The automaker said last week it will cancel plans to suspend production at a plant in Hiroshima in order to meet demand from Germany and France, where governments are encouraging consumers to trade in their old cars for more fuel-efficient models.

 

Still, exports and production remain about a third lower than they were before the global financial crisis deepened in September. Output slid 31.2 percent in April from a year earlier and exports dropped 39.1 percent.

 

"It's dangerous to be too pleased with the economy bottoming out," said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo. "Japan's economy will fly low and experience more turbulence until the second half of next year."