Japan Factory Output Rises Less-Than-Estimated 1.4% (Update2)

By Jason Clenfield


Jan. 30 (Bloomberg) -- Japan's factory output rose less than economists estimated in December and companies said they plan to pare production this month as U.S. economic growth slows.

Industrial production rose 1.4 percent from a month earlier, when it dropped 1.6 percent from a record, the Trade Ministry said today in Tokyo. The median estimate of 45 economists surveyed by Bloomberg News was for a 2 percent increase.

A four-month slump in shipments to the U.S. is taking its toll on an economy that got most of its growth from overseas shipments in the third quarter. Companies said they plan to cut production this month and in February, today's report showed, the most pessimistic they've been in almost three years.

``Today's number were weak, and the forecasts were also much weaker than we had anticipated,'' said Yoshimasa Maruyama, senior economist at BNP Paribas Securities Japan Ltd. in Tokyo. ``Production is slowing globally and Japan is no exception.''

The yen traded at 106.88 per dollar at 10:03 a.m. in Tokyo compared with 107.07 before the report was published. The yield on Japan's 10-year government bond fell 1 basis point to 1.465 percent.

Companies plan to cut output 0.4 percent in January from a month earlier and 2.2 percent in February, today's report showed. The last time companies forecast back-to-back declines in production was for February and March of 2005.

Slumps in output have coincided with three recessions since 1991. The economy contracted in the fourth quarter of 2004 when an inventory glut in electronics parts forced manufacturers to scale back production.

Aren't Strong Enough

Record shipments to Asia haven't been strong enough to counter waning demand from the U.S., Japan's largest market. Exports rose at the slowest pace since 2005 in the three months ended Dec. 31, Bloomberg data show.

``The jury's still out'' on how badly emerging markets will be hit by the U.S. slowdown, said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``If you expect a very negative scenario for the U.S., you're obviously going to have a negative outlook on Japan.''

Goldman Sachs Group Inc. said this week that Japan's economy may have already fallen into a recession as domestic demand wanes. Production has ``peaked out,'' Goldman's chief Japan economist Tetsufumi Yamakawa said. He added that a slowdown in export growth, the engine that drove the economy's third-quarter expansion, is becoming ``more pronounced.''

Reports this month signaled the economy is losing steam, with jobs available to applicants falling to a two-year low and consumer confidence sliding to the lowest level since 2003.

Production rose 1.3 percent last quarter, the ministry said.