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Japan industrial production up for second month

Written on January 31, 2011

Japan’s industrial production expanded for a second straight month in December, as strengthening global demand injected companies with renewed confidence.

Factory output rose 3.1 percent from November, the Ministry of Economy, Trade and Industry said Monday. Driving the gains were export-reliant industries including transport equipment, electronic devices and steel.

Monday’s figure beat Kyodo news agency’s average market forecast for a 3 percent rise and prompted the ministry to upgrade its assessment of industrial production _ a key barometer of Japan’s economic health.

It now says output “shows signs of an upward movement.” Last month, it described industrial production as “weakened.”

The result marked the strongest monthly showing of 2010 and indicates that overseas demand is starting to accelerate, sparking the manufacturing sector. Global appetite for Japanese goods, particularly from China, has served as a critical lifeline for the country’s recovery amid lackluster domestic demand.

A steady slowdown in export growth between February and October last year, as well as a strong yen, had triggered concerns that the economy was faltering. Industrial production also declined for five consecutive months between June and October.

Analysts are more bullish about 2011.

Last week, the central bank upgraded its economic outlook for the fiscal year ending March 31. It now expects real gross domestic product to expand 3.3 percent, up from 2.1 percent forecast in October.

Government data last week showed that exports from the world’s third-largest economy rose 13 percent in December from a year earlier, accelerating for the second straight month.

Japanese automakers last week also reported robust production gains in 2010. Nissan Motor Co. said global output surged 37 percent, with production in Japan up 27 percent.

December’s industrial production survey points to further growth this month, with output forecast to rise 5.7 percent. February output is projected to slip 1.2 percent.

The report also shows that shipments were up 1.1 percent in December from a month earlier, and inventories expanded 1.4 percent.

Goldman Sachs economist Chiwoong Lee notes concern about rising inventories of LCD televisions, washing machines and other home appliances eligible for the government’s “eco-points” consumer subsidy program, which is scheduled to expire in March.

“Yet, even if production falls back in March on the end of eco-points, we still think the stronger global picture, especially growing exports on stronger U.S. consumption, will drive improvement in production,” Lee said in a note to clients.

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