Japan's recession woes deepen as output tumbles

Japan sank deeper into recession in October as factory output slumped and consumers reduced their spending in response to the economic crisis, a raft of grim data showed Friday.

Analysts said Asia's largest economy appears to be deteriorating more quickly than expected, dragged down by plunging exports.

Japanese industrial production tumbled 3.1 percent from the previous month as manufacturers slowed their factory lines to cope with the worst financial crisis since the Great Depression, the government said.

Manufacturers said they expected output to tumble 6.4 percent in November and a further 2.9 percent in December.

The figures were simply "horrendous", said Macquarie Securities economist Richard Jerram.

Analysts said production now looks likely to plunge 8.6 percent in the fourth quarter of this year, which would be the biggest drop on record.

Societe Generale chief Asia economist Glenn Maguire described the figures as "stunningly bad."

"Japan's industrial activity is set to worsen in the near-term, perhaps by an unprecedented degree, as exports to the US have plunged over the past year," he warned.

Adding to the gloom, consumer spending dropped 3.8 percent in October from a year earlier as Japanese households tightened their purse strings following months of grim news on the economy and plunging stock market.

"Japan is beginning to be substantially affected by the economic recession," said Kaoru Yosano, the economic and fiscal policy minister. "We are unable to be optimistic (about Japan's economy) from now until next year."

Morgan Stanley analysts said Japan's economy could contract by more than 3.0 percent in the final quarter of 2008 on an annualised basis, after shrinking 0.4 percent in the third quarter.

Japanese exports fell at the fastest pace in almost seven years in October, tumbling 7.7 percent from a year earlier, as once-buoyant shipments to the rest of Asia started to drop, earlier figures showed.

Although unemployment dropped to 3.7 percent in October from 4.0 percent in September, analysts said that was mainly the result of a shrinking labour force in the greying nation.

The figures also do not include temporary workers, who have been first in the firing line with thousands of positions axed in recent weeks at carmakers and other manufacturers.

There were only 80 job opportunities for every 100 job seekers in October, suggesting that it is becoming more challenging to find work.

"Domestic demand remains weak, and a drop in unemployment seems to be temporary," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

Core inflation slowed to 1.9 percent in October as oil prices fell and a stronger yen reduced the cost of imports, adding to concerns that Japan may slip back into deflation.

Last month Japan's central bank cut interest rates for the first time in seven years to try to ward off a deep recession, lowering its key lending rate by 20 basis points to just 0.3 percent.

Some analysts expect a return to virtually free credit in Japan.

"I think the BoJ will be forced to cut rates by the end of this year," said Yamamoto.

The Organisation for Economic Cooperation and Development predicted this week that Japan would sink back into deflation in the second half of next year, requiring its interest rates to be kept very low, possibly beyond 2010.

You must sign in to comment