Japan May Industrial Production Falls 2.3% on Exports (Update3)
Japan May Industrial Production Falls 2.3% on Exports
June 29 (Bloomberg) -- Japan's industrial production fell in May, led by autos, digital cameras and personal computers, as demand from China and the U.S. slowed.
Production dropped a seasonally adjusted 2.3 percent from April, the Ministry of Economy, Trade and Industry said in a report. The decline matched the median forecast in a Bloomberg News survey of 39 economists.
Manufacturers including Olympus Corp., the world's fourth- largest seller of digital cameras, are cutting inventories as oversupply and falling prices reduce profits. Slowing exports and production will make Japan's economy, the world's second largest, more reliant on consumer spending to sustain a recovery.
``We're seeing high output levels still, but momentum is slowing,'' said Lim Su Sian, an economist at IDEAGlobal in Singapore. ``Domestic demand will have to be the pillar of growth because of the export drag.''
The yen strengthened to 109.77 per dollar at 9:42 a.m. in Tokyo from 110.04 late yesterday in New York, after the price of a barrel of crude oil had its biggest decline in eight weeks.
The ministry forecast production to rise 1.7 percent in June from the previous month and to fall 1.2 percent in July. From a year earlier, production rose 0.9 percent in May.
Asian nations including South Korea are also being hurt by the slowdown in overseas demand. South Korea's industrial production rose 0.5 percent in May, less than expected, a report from government's statistics office showed today.
Exports Slow
Japan's exports rose 1.4 percent in May from a year earlier, the Ministry of Finance said on June 22, the smallest gain since November 2003. Exports to China dropped 0.1 percent in May, while export growth to the U.S. slowed to 3.4 percent from 7 percent in April.
Manufacturers including Olympus, which gets a third of its sales from cameras and other visual-related equipment, are paring inventories as prices fall. The company said on June 6 it plans to reduce camera stockpiles and shut two unprofitable factories in Japan.
``Our priority this year is profit in the digital camera business rather than market share,'' Tsuyoshi Kikukawa, president of Olympus, said in an interview. ``We need to maintain at least a 10 percent share to secure gains.''
Japanese exports to China are easing as the Chinese government restricts lending to industries including real estate, steel and cement to cool the world's fastest-growing major economy. China is Japan's second-largest export market after the U.S.
Steel Shipments
The volume of steel exports to China fell 14.1 percent in May from a year earlier after dropping 17.8 percent in April. Steel export volumes have slid every month this year, according to statistics from the Ministry of Finance.
Demand in China will probably pick up in the fourth quarter as auto and steelmakers reduce excess capacity and as the government starts to build facilities for the 2008 Olympics, Naoki Iizuka, an economist at Dai-Ichi Life Research Institute in Tokyo, said.
Slowing production is increasing Japan's reliance on consumer spending to help maintain a recovery from last year's recession, the fourth since 1991.
Consumer spending accounted for about half of the 4.9 percent annual pace of growth in the first quarter. While economists including Iizuka say it will be difficult to maintain that pace, consumer spending will help extend the recovery.
Oil Prices
Canon Inc. and Sony Corp., the world's largest sellers of digital cameras, said on May 17 they expect sales this year to slow as demand cools in the U.S.
Canon expects shipments to rise 20 percent in 2005 compared with a 63 percent jump last year, while Sony expects shipments to gain 7.1 percent after a 40 percent increase in 2004.
A decline in oil prices from record levels may boost overseas demand and help Japanese exports and production. Crude oil headed for a one-week low after falling more than $2 a barrel yesterday, the biggest drop in eight weeks, on speculation a report today will show U.S. fuel supplies increased last week as demand growth slowed.
Crude for August delivery fell 5 cents, or 0.1 percent, to $58.15 a barrel in electronic after-hours trading on the New York Mercantile Exchange at 8:35 a.m. in Sydney. A close at that level would be the lowest since June 22.
To contact the reporter on this story: Lindsay Whipp in Tokyo at lwhipp1@bloomberg.net
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