(For more stories on Japan's economy, click [ID:nECONJP])
By Leika Kihara
TOKYO Jan 30 Japanese industrial production fell
a record 9.6 percent in December, while core annual inflation
almost evaporated, reinforcing expectations of a record economic
contraction as the global financial crisis worsens.
Unemployment hit a three-year high, household spending slid
and manufacturers saw no quick turnaround in the outlook for
industry -- the main driver of the world's second-biggest economy
-- as inventories hit record highs despite factory closures and
lay-offs to cut production.
The subsiding inflation and worsening economic conditions are
stoking deflation worries, as in other major economies, which may
prompt more central bank steps to support the staggering economy
and unfreeze credit markets that are starving key companies of
Economists said fourth-quarter GDP figures, due out in
February, would likely show Japan's economy shrinking at an
annual rate of around 10 percent -- the sharpest fall since the
first oil crisis in 1974 and bigger than any during the Japanese
banking crisis 10 years ago.
Tatsushi Shikano, senior economist at Mitsubishi UFJ
Securities, said early 2009 also looked bleak.
"As output adjustments continue, weakness in the overall
economy will persist in January-March, and the degree of
worsening depends much on how exports turn out," he said.
"It is already a consensus view that core consumer inflation
will turn negative soon, but we must watch if a worsening of the
economy pushes Japan into a deflationary spiral even though the
Bank of Japan sees no signs of that happening right now."
Japan's industrial production fell a record 9.6 percent in
December, after an 8.5 percent drop in November, as companies
have been forced to cut output as export demand for their cars,
electronics and machinery evaporates. [JPIP1=ECI]
The sharp global slowdown has prompted Japanese chip makers
to seek mergers to survive, while big carmakers like Honda Motor
Co (7267.T) and Toyota Motor Corp (7203.T) slash earnings
forecasts and shutter plants. [ID:nT224768] [ID:nT279044]
"We haven't experienced such a sharp fall in the past,"
Economics Minister Kaoru Yosano said. "This drop is likely to
For a graphic on industrial output, go to:
Related fears for the health of the U.S. economy, and the
effect on Japanese exports, drove the Nikkei share average
.N225 down 3.1 percent, with a string of corporate profit
warnings not helping. [.T]
Once again the yen's JPY= safe-haven reputation trumped the
weak Japanese economic data, as it rose to around 89.3 per
dollar. FXNEWS [FRX/]
INVENTORIES STILL RISING
Susumu Kato, chief economist at Calyon, said he expected a
9.6 percent annualised contraction in the fourth quarter,
followed by a deeper slump in January-March.
Morgan Stanley projected an annualised 13.8 percent
contraction, bigger than the previous record logged in 1974.
"We expect declines across all main demand components, led by
double-digit annualised losses in capex and net exports," said
Morgan Stanley chief Japan economist Takehiro Sato.
Adding to the gloom, there is no sign that production cuts
have finished. Production is now at its lowest level in 20 years
with spare capacity at factories at a nearly seven year high, yet
inventories grew for a fourth straight month.
That suggests further production cuts ahead as manufacturers
try to clear goods piling up in warehouses.
"The inventory ratio rose to a record high, showing output
adjustments are still not catching up with the incredible speed
of falls in shipments," said Junko Nishioka, chief economist for
Factories forecast a further slide in production of 9.1
percent in January and another 4.7 percent fall in February.
Deepening woes are prompting companies to slash not just
output but jobs.
Japan's jobless rate rose to 4.4 percent in December while
the availability of jobs sank to a five-year low. [JPUNR=ECI]
Annual core consumer inflation slowed to 0.2 percent from 1.0
percent in November as oil prices slide, after hitting a decade
high 2.4 percent. [JPCPI=ECI]
Energy prices fell 6.8 percent in December from a year
earlier, a government official said.
While motorists cheer, the rapid slowdown in inflation has
prompted fears of a return to deflation, which plagued Japan in
the early 2000s in the wake of Japan's banking crisis.
The Bank of Japan, which forecasts deflation for two years to
March 2011, has dropped interest rates to just above zero and is
buying corporate debt to ease an increasingly severe funding
The U.S. Federal Reserve on Wednesday also kept its main
interest rates unchanged, but signaled unease over deflation
risks amid the weakening economy. [ID:nN28496147]