Japan
released yet more worrying figures Friday showing the world's third largest
economy was already stuttering before a damaging territorial dispute erupted
with its largest trading partner. Factory
output in August shrank by a bigger-than-expected 1.3 percent from the previous
month, the industry ministry said as it admitted production activity was
weakening. The
decline was much sharper than an average market forecast of a 0.4 percent drop.
Japan's
export-driven economy is struggling to right itself following a series of
problems, including the March 2011 earthquake and tsunami disaster, the
European debt crisis, slowing Chinese demand and the strong yen. "Industrial
Production appears to be weakened," the ministry said in a statement,
downgrading its overall assessment. It had said production "appears to be
flat" when it announced July's preliminary data a month ago.
Japanese
businesses are now worried about taking a hit from the effects of a flare-up in
the row between Tokyo and Beijing over the ownership of islands in the East
China Sea. Japan's
nationalisation in September of three islands in the chain, called Senkaku in
Japan and Diaoyu in China, triggered anti-Japan rallies across China. Major
Japanese companies were forced to close factories briefly.
Auto
giants Toyota and Nissan said Wednesday they would cut production in China
because demand for Japanese cars has dropped, while airlines have been hit by
cancellations of seats on China-bound flights. Mooted
Chinese consumer boycotts of Japanese products are also feared, unsettling
firms sending goods to China, Japan's number one export market. The
industry ministry, citing a survey of production forecasts by manufacturing
companies, said factory output is expected to fall by a further 2.9 percent in
September and to be flat in October. Mizuho
Securities Research and Consulting senior economist Norio Miyagawa said the
ministry's outlook survey suggested "output may lose steam even further. "We
are likely to see sluggish output at least until October, especially in the
automobile sector," he told Dow Jones Newswires, noting the row with China
was a downside risk for the economy. "If
the current disputes with China become prolonged, that will damage Japan's
output and the economy. Kengo
Suzuki, forex strategist at Mizuho Securities, said "a fall in foreign
demand could further pressure the Japanese economy.” It
could also raise expectations for further monetary easing in the long run, he
added. The
Bank of Japan followed its US and European counterparts last week, announcing
$128-billion extra bond buying to take its total monetary easing effort past $1
trillion as it seeks to revitalise the economy. Economists
attributed the August fall to weakening domestic consumer spending and
stocked-up inventories as well as China's corporate performance and the debt
crisis in Europe. Data
released by the internal affairs ministry Friday showed so sign of Japan's breaking
out of years of deflation.
Core
consumer prices in Japan, which excludes volatile prices of fresh food, fell
for the fourth straight month in August, dropping 0.3 percent year-on-year,
data showed. The
ministry also said in a separate survey Friday that household spending rose a
modest 1.8 percent in August from a year earlier. Meanwhile,
the country's jobless rate fell slightly to 4.2 percent in August, down from
4.3 percent in July.
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