By Jason Clenfield and Tatsuo Ito
Oct. 29 (Bloomberg) -- Japanese manufacturers increased production for a seventh month in September, extending the longest stretch of gains in 12 years, as spending by governments worldwide helped to revive trade.
Output rose 1.4 percent last month from August, when it climbed 1.6 percent, the Trade Ministry said today in Tokyo. The median estimate of 30 economists surveyed by Bloomberg News was for a 1 percent gain.
Companies said they planned to increase production in October and November as well, indicating the recovery from a record export collapse in the first quarter is holding up. Growth in China is generating sales for manufacturers including Hitachi Construction Machinery Co., which this week said it has worked off stockpiles that piled up during the recession.
“The pace of the recovery is faster than expected,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo. Withdrawal of stimulus in the U.S. and Europe may cause output and exports to slow down this quarter, Miyazaki said, “but so far, today’s production report showed few signs of that.”
Investors looked past the figures, with stocks falling and the yen strengthening after U.S. data showed new home sales unexpectedly fell, highlighting concern that the recovery in Japan’s second-biggest export market may weaken.
The Nikkei 225 Stock Average dropped 1.6 percent at 10:13 a.m. in Tokyo. The yen traded at 90.59 per dollar from 90.70 before the production report. Japan’s currency has gained 4.9 percent in the past three months, reducing the value of repatriated profits.
Exports Improve
When stripping out the effects of currency moves, exports are improving. By volume, overseas shipments rose 10.4 percent last quarter from the previous three months, according to the Cabinet Office.
Today’s report showed shipments climbed 3.4 percent in September, more than twice the pace of production, causing inventories to decline 0.5 percent. Stockpiles have fallen in eight of the past nine months, leaving manufacturers room to increase output as soon as orders come in. Companies surveyed by the Trade Ministry said they plan to increase production 3.1 percent in October and 1.9 percent next month.
“Inventories and export growth are the drivers,” said Sean Yokota, an economist at UBS AG in Tokyo. “There is demand out there. First it was led by China and exports to Asia, but slowly you’re getting exports to the U.S. starting to rise.”
Chinese Demand
China, the world’s third-largest economy and Japan’s biggest overseas market, grew 8.9 percent last quarter, the fastest pace in a year, fueled by fiscal stimulus and bank lending. Surging Chinese demand was one of the main reasons Honda Motor Co. this week tripled its full-year profit forecast.
Retail sales in the U.S. have risen in three of the past five months and a report later today may show the economy grew an annualized 3.2 percent last quarter, the first expansion in more than a year, according to the median estimate of analysts.
Hitachi Construction, Japan’s second-largest maker of digging equipment, this month raised output at its largest domestic plant to about 50 percent of capacity from below 10 percent in September.
“We faced a tough time,” Chief Financial Officer Nobuhiko Kuwahara said this week in Tokyo after the company announced it returned to profitability last quarter. “We’ve come out of the bottom.”
Not Hiring or Spending
Still, gains in Japan’s output since March have yet to generate employment, trigger capital investment or return companies like Nippon Yusen K.K or Toyota Motor Corp. to profit.
Even after seven months of rising output, factories are using only about two-thirds of their capacity. Production, while improving month-on-month, was still down 18.9 percent in September from a year ago, today’s report showed.
Nippon Yusen, Japan’s biggest shipping line, this week widened its loss forecast for the fiscal year to 27 billion yen ($300 million) from 5 billion yen as a dearth of demand for container transport caused shipping rates to plummet. The Tokyo-based company also cut by half its plans to buy new vessels from 2011.
Toyota’s domestic output fell 11 percent in September from a year earlier, the company said yesterday. It forecasts a loss this business year and says it will sell only 6.5 million vehicles, compared with the 9 million it’s capable of producing.
“Even though we have increases in industrial production, that doesn’t mean workers will get paid more, or more investment will be following,” said Richard Koo, chief economist at Nomura Research Institute in Tokyo. “The initial fall was so large we’re only maybe one third of the way back.”
To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Tatsuo Ito in Tokyo at tito@bloomberg.net.
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