Japan industrial output rises for third month/Japan past worst of slump, says minister - Yosano warns recovery could be fragile

Japan industrial output rises for third month
By Mure Dickie in Tokyo
Copyright The Financial Times Limited 2009
Published: June 29 2009 03:06 | Last updated: June 29 2009 13:47
http://www.ft.com/cms/s/0/a3005e16-644e-11de-a818-00144feabdc0.html


Japanese industrial output jumped nearly six per cent month-on-month in May, matching the growth recorded for April and underscoring growing confidence that the worst of the current slump is over for the world's second largest economy.

However, while the sharp recovery in production by manufacturers means a return to positive gross domestic product growth in the current quarter is increasingly assured, analysts warn that Japan's longer term recovery appears underpowered and vulnerable.

The preliminary 5.9 per cent month-on-month output growth announced for May by the Ministry of Economy, Trade and Industry on Monday was the same as the revised figure for the previous month and the highest recorded since March 1953.

However, it was less than analysts had forecast and well below the 8.8 per cent growth that manufacturers surveyed by Meti had forecast last month. Despite two previous months of recovery, industrial production was still down 29.5 per cent compared with May of 2008.

Economists have been expecting a sustained rapid rebound in output after drastic cuts by companies around the country – achieved by shutting down whole production lines and laying off thousands of temporary workers – have finally managed to bring down inventories that soared when demand collapsed late last year.

Output now appears to be at sustainable levels. Despite the pace of output growth, total inventories fell 0.6 per cent month-on-month in May, their fifth consecutive decline, Meti said.

However, with end-demand in vital markets such as the US and Europe still uncertain, it is clear that manufacturers have a long way to go before they will be able to make full use of production capacity. Meti's production forecast survey found that manufacturers expected to further hike output just 3.1 per cent month-on-month in June and an anaemic 0.9 per cent in July.

Such expectations are likely to be echoed in the Bank of Japan's much-watch quarterly Tankan survey of business sentiment when it is released on Wednesday.

In the first quarter of this year, the Tankan survey suffered a record fall to a record low, and while it is expected to show a dramatic recovery in the current quarter, few believe that Japan will be on a firm road to full recovery until global economic conditions improve markedly.

Meti's Monday data showed that while sectors such as transport equipment, electronics parts and equipment and steel were growing strongly, shipments of capital goods excluding transport equipment – a leading indicator for capital expenditure – continued to fall.

"The huge amount of excess capacity that has opened up across the corporate sector over recent months…points toward several more quarters of falling investment, job cuts and downward pressure on costs and prices," wrote Ben Eldred of Daiwa Securities in a research note.

Japanese consumer prices have already returned to negative territory – down a record 1.1 per in May – and the Organisation for Economic Co-operation and Development has warned of looming "persistent deflation" that will add to the difficulty of addressing Japan's rapidly growing fiscal debt burden.

However, the Bank of Japan remains relatively relaxed about falling prices, with Hirohide Yamaguchi, central bank deputy governor, on Monday stressing that the economy was not "in a deflationary spiral".





Japan past worst of slump, says minister - Yosano warns recovery could be fragile
By Mure Dickie in Tokyo
Copyright The Financial Times Limited 2009
Published: June 30 2009 05:25 | Last updated: June 30 2009 15:30
http://www.ft.com/cms/s/0/fcbeaefa-652d-11de-a13f-00144feabdc0.html


Japan has passed the worst of its current slump and is on course for growth in its next fiscal year, but the recovery of the world’s second largest economy could yet prove vulnerable, Kaoru Yosano, finance minister, warned on Tuesday.

The comments by Mr Yosano, who is also minister for economic and fiscal policy, came as government data showed an up-tick in household spending but also unemployment rising to a half-decade high of 5.2 per cent.

In an interview with the FT, Mr Yosano cited industries such as automaking, steel and electrical machinery as leading the rebound after an ”unthinkably bad” first quarter of 2009.

”Previously, economic conditions were akin to diving head-first off the Eiffel Tower, but since April indicators for all sectors have shown gradual improvement,” the finance minister said.

He said the government was likely to announce – possibly on Wednesday – an economic growth forecast of 0.5 or 0.6 per cent for the year from April 2010, compared with an expected 3 per cent decline for the current fiscal year.

”This year will be a year Japan must endure. But I’m convinced that next year there will be positive growth,” he said.

Optimism about Japan’s prospects has been fuelled in recent weeks by rising industrial output and the end of an export rout, with further cheer offered on Tuesday by the news that household spending in May was up 0.3 per cent year-on-year.

However, economists said spending had been supported by the short-term effect of the government’s Y2,000bn ($20.8bn) cash handout.

Mr Yosano warned that the recovery could still be hit by ”many kinds” of possible negative factors, citing in particular uncertainty about whether the US and Europe had truly resolved the problems in their financial sectors.

The impact of further central government fiscal stimulus spending included in the recently enacted annual and supplementary budgets would be increasingly felt in the second half of this fiscal year, but much would depend on how local institutions and the private sector responded, he said.

”As the effect emerges, it’s possible that the public mood will get a bit brighter, but we policymakers cannot be totally optimistic,” he said.

Rising unemployment is a central concern for Mr Yosano and the long-ruling Liberal Democratic party, which opinion polls suggest could be heading for a historic defeat by the opposition Democratic party at an election due in the next four months.

Unemployment rose to 5.2 per cent in May from 5.0 per cent the month before, and many economists say it is set to soar past the record 5.5 per cent suffered in 2003.

”The government must work to prevent unemployment rising to that record high,” Mr Yosano said.