August 22, 2008

Recession reports - Japanese output falls at fastest pace in five years

Japan last week announced that its factory output fell at the fastest pace in five years in March amid falling US bound exports. Japanese factory output fell by a bigger than expected 3.1% in March from the previous month, more than reversing a rise of 1.6% in February, the Ministry of Economy, Trade and Industry said.

It was the biggest fall since January 2003 and much worse than the 0.7% decline expected by markets, providing a clear indication that the world’s second-largest economy is losing steam.

Mr Hiroshi Shiraishi of Lehman Brothers said “Industrial production may contract again in the second quarter but we are not expecting a sustained or sharp downturn.”

He added that “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.”

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.