[Pen-l] Japan Heads for Worst Postwar Slump as Output Tumbles

[Charles Brown <cdb1003@xxxxxxxxxxx>]

http://www.bloomberg.com/apps/news?pid=20601087&sid=arLSvyBheETQ&refe... 

 Japan Heads for Worst Postwar Slump as Output Tumbles  



By Jason Clenfield and Toru Fujioka 


Jan. 30 (Bloomberg) -- Japan headed for its worst postwar recession as 
factory output slumped an unprecedented 9.6 percent in December, 
unemployment surged and households cut spending. 


The drop in production eclipsed the previous record of 8.5 percent set 
only a month earlier, the Trade Ministry said today in Tokyo. The 
jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump 
in 41 years. 


Recessions in the U.S. and Europe and a slowdown in China have 
smothered demand for Japanese cars, electronics and machinery. Hitachi 
Construction Machinery Co. said this week that it will eliminate 569 
jobs by March and shut a plant northeast of Tokyo for four days a week 
until June. Honda Motor Co. this week widened production cuts. 


âJapanâs economy is falling off a cliff,â said Junko Nishioka, an 
economist at RBS Securities Japan Ltd. in Tokyo. âThereâs really 
nothing out there to drive growth.â 


The Nikkei 225 Stock Average sank 3.5 percent as of 2:47 p.m. in 
Tokyo, led by Nintendo Co., which cut its profit forecast by a third 
yesterday. The Nikkei has fallen 10 percent this year, extending last 
yearâs record 42 percent drop. 


The yen traded at 89.32 per dollar from 89.99 before the reports were 
published. The Japanese currencyâs 18 percent gain in the past year 
has compounded exportersâ woes by eroding the value of their profits 
earned overseas. 


Households Cut Back 


Household spending slid 4.6 percent, a 10th month of declines, 
separate figures showed. Consumer prices excluding fresh food rose 0.2 
percent in December from a year earlier, slowing from 1 percent in 
November. 


The month-on-month decline in production was steeper than the 8.9 
percent economists predicted and the biggest since the figures were 
first compiled in 1953. Output tumbled 11.9 percent in the three 
months to December, the ministry said, the fourth straight quarterly 
drop. Companies planned to reduce production a further 9.1 percent in 
January and 4.7 percent in February. 


South Korean output also declined by the most on record in December, 
plunging 18.6 percent from a year earlier, a report showed today. 


âThereâs a global synchronized recession and manufacturers are 
responding aggressively,â said Jan Lambregts, head of Asian research 
at Rabobank International in Hong Kong. âThatâs going to have a 
profound impactâ on economic growth. 


The International Monetary Fund said this week that Japanâs gross 
domestic product will shrink 2.6 percent this year, the bleakest 
projection for any Group of Seven economy except the U.K. That 
contraction would be Japanâs worst since World War II. 


Record Contraction 


Nishioka at RBS estimated GDP fell at an annual 14 percent pace from 
October through December. That would exceed a 13.1 percent drop in the 
first quarter of 1974 to become the sharpest on record. Economists 
predict a report later today will show the U.S. economy, Japanâs 
biggest market, shrank an annualized 5.5 percent pace last quarter, 
the biggest drop since 1982. 


Japanâs recession began in November 2007, a government panel that 
dates the economic cycle said yesterday. The slump may last more than 
three years and exceed the 1980 to 1983 downturn to become the longest 
on record, Hiroshi Yoshikawa, a Tokyo University professor who heads 
the committee, said in an interview this month. 


âWeâre in a very grave situation,â Economic and Fiscal Policy Minister 
Kaoru Yosano said in Tokyo today. âJapan is being hit by this wave of 
weakening global demand.â 


Gridlock in Parliament 


Parliamentary gridlock has stymied the ruling Liberal Democratic 
Partyâs efforts to pass a 10 trillion yen ($111.2 billion) stimulus 
package. The Bank of Japan, which last month lowered interest rates to 
0.1 percent, has little room to counter the slump other than by 
purchasing corporate debt to ease a credit squeeze, which it started 
to do today. 


Exports tumbled a record 35 percent in December, decimating earnings. 
Toyota Motor Corp., which is forecasting its first loss in 71 years, 
will halt domestic production for 14 extra days this quarter. Smaller 
rival Honda plans to axe all of its 3,100 temporary workers in Japan. 


âIf the production cuts ended with the carmakers that would be one 
thing, but the carmakers drag down the steelmakers and the suppliers 
along with them,â RBSâs Nishioka said. 


Last monthâs increase in the jobless rate was the sharpest since 1967, 
the statistics bureau said. Some 400,000 non-regular workers will lose 
their jobs by March 31, the Japan Manufacturing Outsourcing 
Association said this week. Thatâs more than three times the 124,802 
predicted by the Labor Ministry today. 


âThis deep recession could compel companies to cut full- time 
workers,â said Noriaki Matsuoka, an economist at Daiwa Asset 
Management Co. in Tokyo. âThe jobless rate could rise to around 5 
percent, giving us more reasons not to expect consumer spending to 
support the economy.â 


To contact the reporter on this story: Jason Clenfield in Tokyo at 
jclenfi...@xxxxxxxxxxxxx; Toru Fujioka in Tokyo at 
tfujio...@xxxxxxxxxxxxx 


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