Japanese Factory Output Slides, New Jobs Dry Up

Production at Japanese factories fell by a record 10 percent last month, and new jobs proved harder to find, showing Japan's worst recession since World War Two is deepening.

Annual core consumer inflation slowed to nothing, government data showed, as falling oil prices take the world's second-biggest economy back towards deflation -- less than two years after it escaped the last round of falling prices.

Katsumi Kasahara / AP

As policy-makers scramble to find ways to rescue the economy and government stimulus efforts delayed by a fractious parliament, the availability of jobs fell to a five-year low.

"Japan's economy is now falling off a cliff, and it may not be able to find an exit until early next year," said Takeshi Minami, chief economist at Norinchukin Research Institute. "The key is how effective U.S. stimulus steps will be, while stimulus steps in Japan may not help much. What Japan should focus on now is steps to help the job market."

Employment data for January showed new job offers fell 18.4 percent from a year earlier, while the ratio of jobs to applicants hit a five-year low of 0.67 -- meaning there were only two jobs for every three applicants.

The tough times are prompting households to curb spending, with household spending sliding a bigger-than-expected 5.9 percent from a year ago.

"The recession is having an increasing impact on the real economy," Finance Minister Koaru Yosano told reporters.  "Many measures to support the job market are included in the state budget. We need to ensure the central and local government implement these steps as soon as possible."
     
Deflation Round The Corner

Policy-makers around the world have highlighted the threat of deflation to the global economy but Japan is seen particularly at risk, as plunging demand for its exports puts downward pressure on already frail domestic demand.

The January core consumer price index (CPI), which excludes fresh food prices but includes oil products, may have been flat from a year earlier but economists, who had expected a 0.1 percent fall, said a return to deflation had only been delayed.

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Annual core consumer inflation in Japan has been slowing sharply since it hit a decade high of 2.4 percent last summer, reflecting a plunge in oil prices since then. The Bank of Japan is forecasting two years of deflation.

While economists debate whether Japan will face chronic deflation -- where falling prices lead shoppers to hold back, pushing prices further down -- they say the consumer price index will turn negative as businesses offer bigger discounts to tempt customers.

Japan's industrial output fell a record 10 percent in January, as exports of cars, auto parts and electronics tumbled and manufacturers tried to clear stocks of unsold goods.

Economists said they expected the Bank of Japan to take more steps to ease a credit squeeze that is robbing businesses of cash and driving up bankruptcies, but they said the real action to stimulate the economy had to come from the government.

"The Japanese government needs to hurry on fiscal policy to address the worsening gap between supply and demand," said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

The lower house of parliament is due to pass a record annual budget on Friday but squabbling has held up other stimulus efforts, with opposition parties able to stall legislation in the upper house as they try to force an early election to capitalize on their lead in opinion polls.

     
Eyes On Inventories

But there was a glimmer of hope in a 2 percent fall in inventories, suggesting production cuts that have taken factory output back to levels seen in the 1980s were starting to bring output in line with sharply lower demand.

Production is likely to keep falling until the third quarter, said Kyohei Morita, chief economist for Japan at Barclays Capital, if the United States and China recover.

"There are some good signs in China such as its fiscal spending to support the economy," he said. "We cannot ignore the fact that inventories fell, which will have a positive effect on production later.

Nissan Motor said on Thursday it would reduce some production cuts next month as its stock of unsold vehicles ease. The world's No.1 car maker, Toyota Motor, has said it plans to take similar modest steps in May -- although output will still be well below usual levels.

The global financial crisis has dragged Japan into recession with much of the rest of the rich world, but it has been hit hardest as it has relied heavily on exports for growth.

Japan's economy shrank 3.3 percent in the last quarter, its biggest contraction since the oil crisis of the 1970s and three times the fall in gross domestic product in the same quarter in the United States and more than double that in the euro zone.

Economists warn of another deep fall in the first quarter and a record 4.0 percent contraction in the coming year, with deflation hitting 1.2 percent this year, a Reuters poll shows.

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