Japan Output Slides But Signs of Rebound Emerge

Japanese industrial output slid for the fifth month in a row in February as weak exports weighed on an economy mired in its worst recession since World War Two, but there were tentative signs of recovery.

Manufacturers said they expected output to rise in March and April and they reported a record fall in inventories in February, showing that rapid production cuts in response to the global financial crisis had helped reduce stockpiles of unsold goods.

Still, the government plans to map out a new stimulus package ahead of a G20 summit in London this week to support householders and the service sector to boost the economy, with unemployment forecast to rise and wages stagnant.

"Industrial production will probably bottom out in the second quarter and start rising in the third quarter," said Kyohei Morita, chief economist at Barclays Capital.

"Manufacturers are bottoming out by cutting costs and jobs, which has a negative impact on households and nonmanufacturers. We need fiscal stimulus for these parts of the economy, and the government may announce something specific at the G20 meeting."

Any additional stimulus from Japan's government will come on top of an already announced fiscal spending of 12 trillion yen ($122.3 billion) aimed at easing the pain from the financial crisis that is pushing countries across the globe into recession.

Industrial output fell 9.4 percent in February, a slightly larger fall than the median market forecast for a 9.2 percent decline. In January output fell a record 10.2 percent.

The fall in output in February was concentrated in automobiles, chipmaking equipment and electric machinery, an official told a briefing, as waning overseas demand weighed on exports. Inventories fell 4.2 percent in February, the largest decline on record, the official said.

As well as clearing some unsold goods in February, manufacturers surveyed by the government expect their output to rise 2.9 percent in March and gain 3.1 percent in April.

Hit by plunging global demand and weak consumption at home, Japan's economy is seen shrinking 2.5 percent in the first quarter and 0.4 percent in the second quarter, extending the run of contraction to five quarters in a row.

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Highlighting the lack of confidence in the domestic and global economies, the Bank of Japan's closely watched tankan survey due on April 1 is expected to show sentiment among big manufacturers tumbled to the lowest since 1975.

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