Japanese Production Falls in June

Japanese factory production fell for the first time in five months in June, a sign the recovery may slow as the U.S. economy cools and the rising yen makes it harder for exporters to compete with overseas rivals.

Production fell 0.7% from May, seasonally adjusted, the government said. Economists expected a 0.5% decline. A 4.1% rise in May fueled a 3.6% gain last quarter, the biggest quarterly increase in 15 years.

Sony Corp. and Fujitsu Ltd. last week cut their sales forecasts for this fiscal year, citing slower-than-expected growth in the U.S. and the stronger yen, which has rallied 11% this year. That threatens to snuff out Japan’s recovery from last year’s recession.

“If the engine that’s been firing Japan’s exports slows from 60 kilometers an hour to 10 kilometers an hour, that’s going to hurt Japan,” said Tetsuhide Mikamo, the chief economist at Marubeni Research Institute.

Manufacturers are confident they will bounce from last month’s decline, forecasting production will rise 1.6% this month and a further 1.8% next month, the Ministry of Economy, Trade and Industry said.

“The outlook is still good,” said Tatsuya Torikoshi, a senior economist at Daiwa Institute of Research Ltd.

Toshiba Ltd. and Hitachi Ltd. will give workers fewer days off this year than last as they step up production of chips to meet overseas demand.

Hitachi, Japan’s third-biggest chip maker, will keep its three semiconductor factories running through August, when many Japanese workers take their summer vacation.

Toshiba will give workers six days off, less than half the 14 they had planned.

Shipments fell 2.2% last month from May, the report showed. Inventories fell 1.7% to the lowest since December 1998.

“The inventory adjustment is proceeding and production is gradually increasing,” the ministry said. “But there is still uncertainty about final demand.”