By Jason Clenfield
April 30 (Bloomberg) -- Japan’s industrial output rose for the first time in six months and at twice the pace predicted by economists, indicating the economy may resume expanding as soon as this quarter.
Factory production climbed 1.6 percent in March from February, when it dropped 9.4 percent, the Trade Ministry said today in Tokyo. Companies plan to increase output in April and May to replenish inventories that fell 3.3 percent last month.
Stocks rose on speculation that the worst of the recession may be over as U.S. consumers increase spending and stimulus packages in Japan and abroad take effect. Still, the slump that started with a collapse in exports may spread to households as companies cut jobs and wages.
“Judging from today’s output number alone, we can assume Japan’s economy will show a pretty solid expansion in the second quarter, though it would be a rebound from a very low level,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “It’s still too early to predict that Japan’s economy will return to a sustainable growth path.”
The Nikkei 225 Stock Average rose 4 percent in morning trading in Tokyo, taking its gains to 25 percent since the gauge reached a 26-year low on March 10. The yen traded at 97.75 per dollar from 97.53 before the report.
Production Forecasts
The median estimate of 33 economists surveyed by Bloomberg News was for production to gain 0.8 percent. Companies forecast output will increase 4.3 percent in April and 6.1 percent in May. The Trade Ministry said output is “stagnant” as opposed to “falling sharply” previously.
“The production figures are the light at the end of the tunnel,” said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo. “But the economy is at a low level and the strength of the recovery is weak.”
The economy shrank at an annual 12.1 percent pace in the last three months of 2008 and analysts expect a similar rate of contraction in the first quarter.
Reports show the slump is at least moderating. Exports rose last month from February and sentiment among consumers, merchants and small businesses advanced, while 25 trillion yen ($255 billion) in stimulus measures pledged by Prime Minister Taro Aso since September may support domestic spending. Honda Motor Co. said this week the U.S. market has hit bottom.
Consumer spending in the U.S., Japan’s biggest overseas customer, jumped the most in two years in the first quarter, according to gross domestic product figures released yesterday.
China’s Stimulus
In China, $585 billion in stimulus spending is starting to kick in: urban fixed-asset investment jumped 26.5 percent in the first two months of the year, bank lending quadrupled in February and vehicle sales rose 25 percent.
Even so, Japanese companies may fire more staff and keep cutting wages to protect profits, and that’s likely to depress household spending, said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “Consumer spending is what we need to closely monitor from now on,” she said.
Sharp Corp. and Mitsubishi Motors Corp. said sales will keep falling this fiscal year and only cost cuts will help them return to profitability.
Japan’s unemployment rate probably climbed to a four-year high of 4.6 percent in March and household spending slumped for a 13th month, economists expect reports will show tomorrow.
Replenishing Inventories
Some companies may have raised production to replenish inventories rather than to feed new demand. Manufacturers including Toyota Motor Corp. have cut stockpiles faster than sales have fallen, leaving room for a bounce in output that may be limited unless sales pick up.
“Exporters are rebuilding inventories on the basis of expectations for shipments,” said Dwyfor Evans, a strategist at State Street Global Markets in Hong Kong. “This is a little bit uncertain because if new orders remain at relatively low levels you’re not going to see a sharp rebound in production.”
The Bank of Japan later today will probably cut its economic forecast for the year that started April 1 from a 2 percent contraction predicted in January. Governor Masaaki Shirakawa said this month weakening spending by companies and consumers will impair growth this year even as declines in exports and production moderate.
To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net
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