* July output up 0.6 pct vs 1.5 pct forecast
* Manufacturers see 2.8 pct rise in Aug, 2.4 pct drop in
* Strong yen, global slowdown, slow reconstruction cloud
* Data raises doubts about strength of rebound in output
(Adds graphic, detail)
By Kaori Kaneko
TOKYO, Aug 31 Japanese factory output rose less
than forecast in July and companies expect production to dip
next month in a sign the surging yen and slowing global growth
are weighing on the recovery in the export-reliant economy.
Industrial output rose 0.6 percent in July from the previous
month, against a median market forecast for a 1.5 percent
increase and following a 3.8 percent rise in June, data from the
Ministry of Economy, Trade and Industry showed on Wednesday.
Manufacturers surveyed by the ministry ramped up their
output growth forecast for August to 2.8 percent from 2.0
percent, but predict a 2.4 percent decline in September.
"The expected drop in September is bigger than anticipated,"
said Mari Iwashita, chief market economist at SMBC Nikko
Securities. "It is a worrying sign going into the fourth
Output has been rebounding from the deep slump caused by the
March 11 earthquake and tsunami as companies made strides in
mending broken supply chains and factories. The July figures
showed output of cars and telecoms equipment rose while
electronics and chemicals fell.
But sluggish growth in the major demand centres of Europe
and the United States and a yen close to record highs raise
doubts about the strength of the rebound in the months ahead.
Indeed, a purchasing managers' survey showed new export
orders fell in August to their lowest level in four months as
growth for the overall sector cooled.
"It looks like industrial production is losing momentum due
to a slowdown in the global economy," said Hiroaki Muto, senior
economist at Sumitomo Mitsui Asset Management in Tokyo.
"This is payback from the quick V-shaped rebound after the
natural disaster. We could see a pickup in output again toward
the end of the year as overseas demand stabilises, but the trend
won't be that strong," he said.
Yoshihiko Noda, voted in this week as Japan's sixth prime
minister in just five years, has said he is aware of the
economic problems as he also takes on the task of uniting his
fractious ruling party and resolving the worst nuclear power
crisis since Chernobyl.
Still, the conservative forecasts of Japan's companies point
to a rise in output in the July-to-September quarter of 6.3
percent, which would be the strongest increase since the first
quarter of 2010, said an official in a briefing on the data.
Analysts polled by Reuters early this month predicted
Japan's economy would pull out from the post-disaster recession
and grow 1.2 percent in the current quarter, the fastest pace
among major industrialised economies.
In a sign the recovery continued, retail sales and household
spending data on Tuesday showed a further improvement in
The government's decision to lift mandatory power
restrictions for large users in greater Tokyo two weeks earlier
than planned is also expected to bode well for industry.
But the yen's strength and a slowdown in the global recovery
from the financial crisis are nagging worries for manufacturers,
which was reflected in the September output expectations.
"This will force revisions in the Oct-Dec production
forecasts since it was almost a given that the July-September
figure would be quite good," said Iwashita.
Reconstruction of Japan's disaster hit areas will help lift
economic activity. Tokyo plans to spend 13 trillion yen ($170
billion) to rebuild on top of 6 trillion yen already earmarked
for immediate relief measures, but it is unclear when the third
supplementary budget will be implemented to kick-start
full-fledged reconstruction, as the political impasse has
delayed rebuilding efforts.
Bank of Japan Governor Masaaki Shirakawa has signalled the
bank's readiness to ease monetary policy again if the economy's
recovery prospects are threatened. The BOJ will hold its regular
rate review on Sept. 6-7.
(Writing by Rie Ishiguro and Shinichi Saoshiro; Editing by