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Japan's Industrial Production Falls for Second Month (Update7)

Japan's Industrial Production Falls for Second Month

April 28 (Bloomberg) -- Japan's industrial production unexpectedly fell in March, led by transport equipment and electrical machinery, adding to concern that the world's second- largest economy is faltering.

Production fell a seasonally adjusted 0.3 percent from February, when it dropped 2.3 percent, a Ministry of Economy, Trade and Industry report showed today in Tokyo. Retail sales fell for a second month, according to a separate report, and the Bank of Japan said deflation will linger for an eighth year.

Manufacturers including chip-testing equipment maker Advantest Corp. say they are concerned about the outlook for sales and profits as U.S. demand cools and the cost of oil products and metals rise. Signs Japan is struggling to grow after last year's recession prompted the central bank to hold interest rates near zero today.

``The economy will need a recovery in production to enjoy sustainable growth,'' said Yasukazu Shimizu, a senior market economist at Mizuho Securities Co. in Tokyo, among the seven to predict a decline in output. ``Even a slight slowdown in the U.S. could lead to a recession in Japan.''

The benchmark 1.3 percent bond due in March 2015 rose, pushing its yield down 2 basis points to 1.24 percent at 3:47 p.m. in Tokyo, the lowest since March 1, 2004. A basis point is 0.01 percentage point.

The decline in production compares with a median 0.2 percent increase forecast by 35 economists in a Bloomberg News survey and a decline in February.

Retail Sales

Retail sales fell 0.9 percent in March as consumers trimmed spending on items including food and clothing, a separate report from the trade ministry showed.

``Consumer spending hasn't yet reached a level of stability where it can underpin economic growth,'' said Naoki Iizuka, chief economist at Dai-Ichi Life Research Institute, a unit of Japan's second-largest insurer by assets.

Record prices of oil and rising interest rates in the U.S. are cooling demand for Japan's exports of flat-panel displays, digital cameras and automobiles. U.S. consumer confidence dropped to a five-month low in April as rising oil costs eroded sentiment.

``In 2005, the list of uncertainties and risks is particularly long,'' Carlos Ghosn, chief executive officer of Nissan Motor Co., said in an interview, citing raw materials prices and ``question marks about how strong will the U.S. economy be.''

Trade Surplus

Tokyo-based Nissan, Japan's second-biggest carmaker, said on April 25 profit for the three months ended March 31 fell 0.9 percent to 139 billion yen ($1.31 billion) because of higher taxes and increased costs of steel and aluminum.

Producer prices rose for a 13th month in March, the Bank of Japan said in April 13. The bank's index of prices of energy and raw materials rose 1.4 percent from a year earlier.

Japan slipped into its fourth recession since 1991 last year as exports faltered and consumer spending, which accounts for more than half of the economy, stalled. The economy grew at a 0.5 percent annual pace in the fourth quarter.

Japan will probably expand 0.8 percent this year, lagging growth of 3.6 percent in the U.S. and 4 percent in South Korea, the International Monetary Fund said on April 13.

Production in South Korea rose in March at the fastest pace in almost three years as consumer spending and exports picked up, the nation's statistics office said today. Output rose a seasonally adjusted 3.8 percent from February.

Japan's trade surplus narrowed in March as imports rose faster than exports, a report on April 21 showed. Spending by households headed by a salaried worker slid 1.1 percent in March from February as manufacturers reduced overtime hours, and the economy lost 270,000 jobs, reports this week showed.

Chip Glut

Advantest, the world's biggest maker of memory-chip testing equipment, said April 26 that net income for the three months ended March 31 fell 55 percent as an oversupply of semiconductors used in consumer electronics prompted customers to hold back investment. The Tokyo-based company said profit will probably decline in the year started April 1, partly because of rising raw materials costs.

Advantest is among the top six-most heavily weighted companies in the Nikkei 225 Stock Average, along with electronic machinery makers Fanuc Ltd., Kyocera Corp. and Tokyo Electron Ltd.

Seiko Epson Corp., the world's biggest printer maker, had a loss in the fiscal fourth quarter because of falling prices for electronics components and expects profits to decline 3 percent in the business year started April 1 because of a slump in demand for electronics.

``The key to returning to profit lies in the electronic devices business,'' Executive Vice President Toshio Kimura said in Tokyo on April 26. ``We expect the electronic-device division to recover sometime in the second half.''

Production rose 1.7 percent in the three months ended March 31, the first gain in three quarters. Manufacturers expect to boost production 3.5 percent this month and cut it 1.4 percent in May, according to a government survey in today's report.

``This does not mean the economic recovery is off track, but does show that the effects of slower overseas demand and somewhat sluggish domestic demand are still being felt,'' said Kirby Daley, a strategist at Societe Generale Securities' Fimat unit in Tokyo. ``It is a slow climb out the soft patch.''

From a year earlier, Japan's production rose 1.1 percent in March, today's report showed.


To contact the reporter on this story:
Lily Nonomiya in Tokyo at [e-mail]


LINK: http://www.bloomberg.com/apps/news?pid=10000080&sid=aTcurE65S4II&refer=asia