Wednesday April 30, 05:12 AM
Japan's factory output falls at fastest pace in five years
By Daniel Rook
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TOKYO (AFP) - Japan said Wednesday its factory output fell at the fastest pace in five years in March amid falling US-bound exports, adding to worries about the health of Asia's largest economy.
At the same time, however, the unemployment rate fell slightly as the retirement of baby boomers offset a drop in the number of jobs on offer.
Factory output fell by a bigger than expected 3.1 percent in March from the previous month, more than reversing a rise of 1.6 percent in February, the Ministry of Economy, Trade and Industry said.
It (Frankfurt: A0MLX5 - news) was the biggest fall since January 2003 and much worse than the 0.7 percent decline expected by markets, providing a clear indication that the world's second-largest economy is losing steam, analysts said.
"Industrial production may contract again in the second quarter but we're not expecting a sustained or sharp downturn," said Lehman Brothers (NYSE: LEH - news) economist Hiroshi Shiraishi, who anticipates a "soft patch" for the Japanese economy.
If the global economy escapes a severe downturn then Japan should avoid a severe recession, because it is in much better shape than it was during past period of economic difficulties, he said.
Japan's central bank is expected to cut its forecast for 2.1 percent economic growth in this fiscal year to March later Wednesday, when it is also seen leaving interest rates on hold at 0.5 percent.
Japan's corporate sector has been a key driver of the recovery in Japan after a decade-long slump as strong export growth gave companies the cash to invest heavily in new production facilities.
But with exports to the shaky US economy now declining and a stronger yen hitting export revenues, executives are becoming more cautious about the earnings outlook.
Industrial production is expected to fall 0.3 percent in April month-on-month but rise 3.4 percent in May, the government forecast based on a poll of firms.
"We are feeling the gradual effect of slowing exports to the United States," Economic and Fiscal Policy Minister Hiroko Ota told reporters.
"Corporate earnings are being shaken by external factors such as (a slowdown in) the US economy, the yen's appreciation and high oil prices," she said.
Spending by Japanese households fell unexpectedly by 1.6 percent in March from a year earlier due to declines in spending on cars and house renovation, the government said.
"A full recovery in consumption can hardly be expected on the back of worsening sentiment and employment," warned Goldman Sachs (NYSE: GS - news) economist Naoki Murakami.
Japan's unemployment rate dropped unexpectedly to 3.8 percent in March from 3.9 percent the previous month, the government reported.
The jobless rate averaged 3.8 percent in the fiscal year to March 31, hitting a 10-year low as the economy recovers from its long slump.
The number of unemployed people dropped by 130,000 in March from a year earlier to 2.68 million.
Analysts noted, however, that with fewer new jobs on offer, the decline in the jobless rate was largely the result of the retirement of post-war baby boomers rather than due to increased hiring by companies.
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