Japan Output Slowing, But Recovery Hopes Still Alive

Japan’s industrial output contracted 0.4% in April from the previous month, worse than analysts had expected, but a 6.5% year-on-year jump kept recovery hopes alive in the world’s No. 2 economy.

On a seasonally adjusted basis, industrial output--considered the star performer of Japan’s fledgling recovery--slowed after a strong 2.4% rise in March, the Ministry of International Trade and Industry (MITI) said today.

The fall briefly batted down the yen, but most economists doubted it signaled a significant slip in the economy, and many seized on MITI’s forecasts for rises in manufacturing output, of 0.4% in May and 0.5% in June.

“MITI’s forecasts of 0.4% and 0.5% give reasonable quarter-on-quarter growth of around 1.4%, which points to further moderate growth in production,” said Brian Rose, economist at UBS Warburg in Tokyo.

Economists had expected, on average, a 0.7% rise in April’s industrial output--a sector that has been vital in kick-starting the struggling economy.

“The April figure is a little bit weaker than expected . . . but forecasts for May and June are both positive,” said Koji Shimamoto, chief strategist at BNP Paribas in Tokyo.

“Also, the figure in March was pretty strong at a 2.4% rise, so the April figure can be taken as a reaction to that of the previous month,” Shimamoto said.

In early trading today, the dollar was hovering at 106.95 yen from 106.96 in New York on Friday, and dealers said the data were quickly factored into trading. Tokyo’s Nikkei index opened higher today.

A MITI official said declines in mobile phones and personal computers were the biggest factors for the overall drop in April, but MITI kept its assessment that “overall, production is on a moderate upward trend.”

The March data reflected a change by MITI to recalibrate the base for its seasonal adjustments and use a new data series that better adjusts for seasonal factors.

Japan has pumped more than $928 billion into the economy in the last several years to pull it out of its worst economic slide in half a century.