Industrial production fell sharply in October and manufacturers warn of more reductions in coming months. With consumer spending also in a slump, concerns are growing that Japan's recession may be more severe than anticipated.
The bleak news on Japanese factory output may point to a longer and deeper global recession, with the euro zone and
With household spending also sliding,
Falling oil prices point to the risk of a return to deflation, although economists are divided on this and whether the Bank of Japan will return to a zero interest-rate policy.
Finance Minister Shoichi Nakagawa called for more action by the BOJ to deal with the worsening economy.
Exporters have been the main engine of growth for
"Production is falling much faster than we expected. Companies are adjusting their production very quickly," said Takumi Tsunoda, a senior economist at Shinkin Central Bank Research. "Auto makers are the worst hit, but their turmoil is starting to spill over into other sectors, such as steel makers."
Industrial output fell 3.1 percent in October, more than a median market forecast for a 2.5 percent drop, and the outlook is for a record 8.6 percent fourth-quarter contraction.
For a graphic tracking monthly industrial output, click: https://customers.reuters.com/d/graphics/JP_INDOUT1108.gif
Industrial output has already been falling for three quarters this year and, with household spending also in decline, economists warn of a longer and deeper recession. "The figures reconfirm that conditions are worsening very badly," said Yoshikiyo Shimamine, chief economist at Dai-Ichi Life Research Institute, warning that
"It is now the Christmas shopping season in
"Chinese firms may be hit by slow sales of toys and clothing, but sluggish sales of high-tech items will impact companies in
Some economists say
Not helping matters is a rise in the yen to 13-year highs against the dollar last month. It is still around 95 yen per dollar, further curbing profits exporters earn in other currencies.
Share prices briefly dipped after the data and Japanese bond prices edged up, but the yen held firm on fears of a longer and deeper global recession, with the low-yielding currency seen by investors as a refuge from the economic storm.
Japanese core annual inflation slowed in October for a second straight month, underscoring a view that falling energy costs may heighten the risk of a return to deflation later next year.
Excluding volatile prices of fresh fruit, vegetables and seafood but including oil products that are diving in price, core consumer prices rose 1.9 percent in October from a year earlier, slipping from a 2.3 percent increase in September.
For a graphic on Japanese inflation, click:
Annual inflation excluding oil products dipped to 1.2 percent while partial figures for November, covering
"The pace of rises in consumer prices will keep slowing towards the July-September quarter next year and we expect core consumer prices to start falling after July-September next year," said Kyohei Morita, chief economist at Barclays Capital.
The OECD has singled out
BOJ outlook split
Analysts are split over whether the threat of deflation will prompt the Bank of Japan to cut rates again in the future after it trimmed them to 0.3 percent last month.
Masamichi Adachi, a senior economist at JPMorgan Securities Japan, is among those expecting a return to zero interest rates, warning that inflation will slide much faster than some realise.
Other analysts say it is too early to be talking about persistent deflation, and see limited scope for a BOJ rate cut and investors pricing the likelihood of a rate cut are also not seeing much chance of one, but the finance minister called for central bank action.
"I personally think more steps are needed and I want (Bank of
Shirakawa said this month he was aware of the risk but the central bank does not forecast a return to deflation, which afflicted the nation for about a decade from the 1990s.
Date created : 2008-11-28