Japan Recession Deepens as Factory Output Plunges

By Jason Clenfield and Toru Fujioka

Feb. 27 (Bloomberg) -- Japan’s manufacturers cut production by a record 10 percent in January and household spending plunged, adding to evidence that the economy in its worst recession in 60 years.

The month-on-month decline in factory output exceeded December’s record decline of 9.8 percent, the Trade Ministry said today in Tokyo. Household spending fell 5.9 percent from a year earlier, the biggest drop in more than two years.

Competition for jobs intensified as the number of positions on offer slid the most in more than 16 years. A collapse in exports is forcing companies to retrench: Toyota Motor Corp. cut output last month at the fastest pace in two decades and Advantest Corp., Japan’s biggest maker of memory- chip testers, said this week it will fire 1,200 workers.

“It’s an awful picture,” said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. “There’s obviously a huge burden in terms of Japan’s export sector, and it’s having a real impact on the domestic sector as well.”

The yen rose to 97.48 per dollar as of 12:10 p.m. in Tokyo from 98.38 before the reports were published, on speculation the currency’s 4.2 percent decline this week was overdone.

The benchmark Topix stock index rose 0.6 percent at the lunch break, led by resource companies as oil prices gained, paring the year’s losses to 13 percent. Transport and machinery indexes fell 1.1 percent and 1.2 percent, respectively.

Region’s Woes

Other Asian economies are also suffering as the global recession saps demand for exports. Singapore shrank the most in at least 33 years last quarter, and analysts surveyed by Bloomberg expect figures today will show the Indian economy grew at the slowest pace since 2004 in the same period.

Japan’s gross domestic product shrank at an annual 12.7 percent pace in the final three months of 2008, the most since the 1974 oil shock. Exports plunged a record 45.7 percent last month, prompting analysts to say the economy won’t do any better this quarter.

The recession that began in November 2007 has put thousands out of work and parliamentary gridlock has prevented Prime Minister Taro Aso’s government from passing stimulus measures needed to spur domestic spending and protect jobs.

The ratio of positions available to each applicant slid the most since 1992 in January, dropping to 0.67 from 0.73, the Labor Ministry said today. The unemployment rate unexpectedly fell to 4.1 percent from 4.3 percent as housewives got part- time work to supplement declining incomes, said Koji Katoh, the statistics bureau’s director of labor statistics.

Extreme Adjustment

“The level of output adjustment is so extreme that the drop in the jobless rate is immaterial; we’ll see it rise eventually,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “Japan’s economy will remain miserable.”

Consumer prices failed to rise in January for the first time in more than a year as households cut spending, the statistics bureau said today, indicating deflation may resurface in the world’s second-largest economy.

“Consumption has gotten off on a bad start in the first quarter,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Domestic demand is going to be weak for quite some time.”

Advantest said this week it will fire 1,200 workers by March because it expects to lose money this year. Advantest, Nissan Motor Co. and Pioneer Corp. have announced more than 30,000 job cuts this month.

Production will decline a further 8.3 percent this month before rebounding 2.8 percent in March, according to companies surveyed by the Trade Ministry. If the forecasts materialize, output will tumble a record 22.4 percent in the first quarter.

Exhausting Stockpiles

Still, companies have been paring output faster than demand has fallen to exhaust stockpiles. Inventories fell 2 percent in January, the first drop in five months.

“Given how radical the production cutbacks have been, we could hit bottom soon,” said Kiichi Murashima, chief economist at Nikko Citigroup Ltd. in Tokyo.

Nippon Steel Corp. said this week output should pick up next quarter because customers have used up their stockpiles. Nissan, Japan’s third-largest automaker, said yesterday it will raise domestic production next month while Toyota Motor Corp. plans to increase manufacturing in May as it unveils new models.

Even so, higher output won’t signal an economic recovery, analysts say.

“You’re going to a short-term pickup but activity will still be very depressed,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo.

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net