U.S.-JAPAN TRADE ACCORD : JAPAN’S ECONOMY : Output Slide Raises Fears of Recession

Japan announced Wednesday that its industrial output dropped for the second straight month in May, raising fears that the economy may be sliding into recession again.

Industrial output fell a preliminary 0.3% from a month earlier, and manufacturers’ output--a key component of industrial production--is expected to drop 1.4% in June and another 1.5% in July, the Ministry of International Trade and Industry said.

Geoffrey Barker, chief economist at brokerage Smith New Court, said the May figure is close to what financial markets had predicted but that the MITI forecast for June and July are more important clues to the future of the economy.

“It does appear that the Japanese economy at this moment is heading back into a recession,” he said.

The output data came only a day after the government announced a set of new policy steps, such as accelerated spending on public works projects, in an effort to jack up the fragile economic recovery and revitalize the stock market.

But the government’s steps failed to buoy the Tokyo stock market, which slipped for the second day Wednesday, toward a 34-month low. The Nikkei 225-share average closed down 140.98 points, or 0.96%, at 14,618.07.

A senior MITI official told reporters that the ministry is extremely concerned.

He said the 0.3% drop in May was mainly due to a fall in car output and that the appreciation of the yen had made car firms cautious about exports in the following months.

A major research institute, Nikko Research Center, said in a report Tuesday that the economy may have entered a fresh recessionary phase in the April-June quarter after a brief expansionary period.