* June output falls 3.3 pct vs f'cast -1.2
* Manufacturers expect output to rise in July, Aug
* Govt cuts view on output, says it has weakened
* Decline in shipments similar to last recession
* Analysts say weak exports may weigh on output ahead
(Adds details on shipments, inventories, recession risk)
By Stanley White
TOKYO, July 30 Japan's June industrial output fell at the
fastest rate since the earthquake and tsunami of March 2011 as companies slowed
production to offset a build-up in inventories, clouding the outlook for the
The 3.3 percent month-on-month drop far exceeded the median 1.2 percent fall
forecast in a Reuters poll of economists, and followed a 0.7 percent increase in
May, data from the Ministry of Economy, Trade and Industry (METI) showed on
In unusually frank language, a METI spokesman said the data showed shipments
of goods fell for five consecutive months - a pattern similar to the last time
Japan was in recession in the middle quarters of 2012.
The data and the METI official's comments suggest the economy may struggle
to rebound in the current quarter following an expected contraction in the
second quarter from the sales tax hike, with a Reuters poll conducted in July
projecting a 1.4 percent quarterly drop.
The ministry cut its assessment of output, saying it had "weakened."
The decline in output could deepen policymakers' fears for the economic
outlook and the government's "Abenomics" plan to defeat 15 years of deflation
and restore growth.
"We are sceptical that Abenomics will restore GDP growth to its
pre-financial crisis average of 1.8 percent. We think it's likely to settle
closer to the 0.9 percent average of the 1990s Lost Decade," HSBC Japan
economist Izumi Devalier said in a note to clients.
Manufacturers surveyed by the ministry expected output to rise 2.5 percent
in July and increase 1.1 percent in August as the pain from a sales tax hike in
But the METI official told reporters these forecasts were overly optimistic
because the high level of inventories, especially of durable consumer goods,
meant manufacturers needed to curb output further.
Analysts expect the economy grow 0.6 percent in the current quarter,
however, as household spending recovers from the tax hike and government
stimulus measures support domestic consumption.
"The pent-up demand ahead of the sales tax hike was bigger than expected so
the consequent downturn is pretty steep, which is probably why output fell so
much in June," said Junko Nishioka, chief Japan economist at RBS Securities.
"We don't expect output to keep falling in the current quarter as the tax
hike effect is fading," she said. "Still, the slow pace of recovery in exports
may weigh on output."
Some economists have said they may need to lower their forecasts as exports
have disappointed for the past few months, and the worse-than-expected
industrial production data could increase uncertainty about the economy.
Exports fell 2.0 percent in June from a year earlier, despite the yen
falling by about 20 percent, while imports increased 8.4 percent.
Japanese companies have been shifting production capacity overseas for
better access to faster-growing markets, so the weak yen is not helping to
Many economists worry that export weakness will continue as it will be
difficult to encourage companies to bring that production capacity back to
(Additional reporting by Leika Kihara; Editing by Eric Meijer)