Japan output rises for the fourth month

Japan output rises for the fourth month
By Mure Dickie in Tokyo
Copyright The Financial Times Limited 2009
Published: July 30 2009 03:00 | Last updated: July 30 2009 12:34
http://www.ft.com/cms/s/0/bafbdeca-7cac-11de-a7bf-00144feabdc0.html


Japanese industrial output rose for a fourth month in a row in June and is expected to keep climbing as electronics manufacturers, steelmakers and chemical producers restart production lines halted during the country’s sharpest post-war slump.

Preliminary data released by the Ministry of Economy, Trade and Industry on Thursday showed June industrial production was up 2.4 per cent from May, less than half the revised 5.7 per cent growth recorded the previous month but broadly in line with economists’

The rise in output supports expectations that the worst of the current slump in the world’s second-largest economy is over, although it is still unclear how sustained or robust Japan’s recovery will prove. Despite record growth over the last quarter, production in June was still down 23 per cent compared with the same month of 2008.

The strength of end-demand for Japanese goods in vital markets such as the US and Europe remains uncertain, with some economists and officials concerned about possible excess optimism regarding the “green shoots” of global recovery.

The sectors contributing most to the output revival in June were electronics manufacturing, steel and iron production and chemicals, Meti said. Manufacturers on average expected output to grow a further 1.6 per cent this month and 3.3 per cent in August.

Still-falling inventory levels will fuel confidence output growth can be maintained. Meti said inventories were down 1 per cent month-on-month in June, while the inventory ratio — which compares inventory to actual shipments and is seen as a leading indicator — was down 9.8 per cent.

Chiwoong Lee, economist at Goldman Sachs, said the sharp fall in the inventory ratio suggested the driver of current production growth had shifted from addressing excessive inventory reduction to responding to overseas and domestic demand fuelled by government stimulus policies.

"Production should continue growing for a time given supports such as additional policies overseas, but there is still a risk of another inventory correction triggered by falling consumption amid deteriorating employment conditions,” Mr Lee wrote in a research note.

While the Bank of Japan this month announced that economic conditions had “stopped worsening”, it also highlighted doubts about the robustness of recovery by predicting the contraction in gross domestic product in the current fiscal year would be greater than previously forecast, at 3.4 per cent in the year to March 2010.

Analysts warn that demand remains reliant on stimulus spending by governments around the world, with little sign that Japan is close to a "self-sustaining" recovery.

"We have yet to confirm a development from 'passive' production supported by overseas and domestic stimulus to 'active' production in the direction of domestic capital investment," Barclay Capital economists wrote in a research note.