Monday, March 30, 2009

Japan’s output slides for fifth month




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 the second world war, 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.”

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

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.

Japanese companies cut inventories at an unprecedented pace in February and said they would increase production in coming months, indicating the worst of the country’s manufacturing slump may be over.

Inventories fell 4.2 percent last month, the biggest decrease since record-keeping began in 1953, the Trade Ministry said today in Tokyo. Factory output slid 9.4 percent from January, when it plunged a record 10.2 percent.

Production may rise for the first time since September after companies from Toyota Motor Corp. to Nissan Motor Co. burned off stockpiles by temporarily closing plants. Japan’s recession will linger “for the next few quarters” because global demand remains weak, said economist Tetsuro Sugiura.

“The sharp adjustments in production and inventories are probably finished,” said Sugiura, chief economist at Mizuho Research Institute in Tokyo. “But we don’t expect a sharp rebound in production because exports are dropping very significantly.”

The second monthly reduction in stockpiles brought them to the lowest level since August 2007, today’s report showed. Manufacturers said they’ll raise output 2.9 percent in March and 3.1 percent in April, ending a five-month losing streak.

Toyota expects to have adjusted inventories to levels that reflect demand by April, President Katsuaki Watanabe said last week. The carmaker, which cut global output a record 53 percent last month, plans to ease domestic production cuts from May, he said.

Nippon Steel, Nissan

Nippon Steel Corp. last month said production should improve next quarter because customers have used up their supplies. Nissan, Japan’s third-largest automaker, says it will raise domestic output next month.

“Production cuts may already be bottoming out,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. in Tokyo. “That that doesn’t necessarily mean overseas demand is already recovering.”

Exports plunged a record 49.4 percent in February from a year earlier as sales of cars and electronics dried up. The World Trade Organization said last week that global commerce will shrink 9 percent this year, the most since World War II.

Companies have been quicker to react to the drop in demand than in previous slumps, economists said. Manufacturers were reluctant to shed workers and shut plants after Japan’s stock and property bubbles burst in the early 1990s, contributing to the so-called lost decade of economic stagnation.

Learned Lesson

“As a result of that experience, Japanese managers have come to believe they need to adjust very quickly in order to avoid the excess inventories, capacity and debt of the past,” said Sugiura at Mizuho Research.

Japanese companies aren’t alone in slashing production to get rid of stockpiles. U.S. factory inventories have fallen every month since September; in December, they dropped by 1.9 percent, the biggest monthly decline in 62 years of record- keeping. A JPMorgan Chase & Co. index of global inventory growth is close to an 11-year low, economist David Hensley said in a March 11 note.

U.S.-based Caterpillar Inc., the world’s largest maker of construction equipment, has been allowing dealers to cancel orders as it cuts production. Renault SA, France’s second- biggest carmaker, said in January that “inventory management and reduction will remain a priority throughout 2009.”

“Companies have succeeded, as you can see in today’s data, at cutting inventories back,” said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo. “They’re starting to move production back more into line with demand, which is still depressed but obviously going to be a stronger level than the January-February period.”

Toyota Motor Corp. led a 56 percent decline in Japan’s domestic vehicle production last month, the biggest drop since at least 1967, on slumping U.S. and European demand.

Local production at Japan’s 12 automakers fell to 481,396 vehicles from a year earlier, the Tokyo-based Japan Automobile Manufacturers Association said in a statement today. Exports dropped 64 percent to 212,107 vehicles, with North American shipments falling 66 percent. The output and export drops were the biggest since the group began tracking the data.

Toyota, Japan’s biggest automaker, Nissan Motor Co., Mazda Motor Corp. and Mitsubishi Motors Corp. each cut domestic production by at least 60 percent last month to trim inventory. The worst economic crisis since the Great Depression has sapped demand worldwide, sending February U.S. car sales to the lowest level since December 1981. Japan’s domestic auto production has posted record drops every month since November.

“There are now signs that after the large-scale cuts in production in the first quarter, inventory levels are coming down,” said Ashvin Chotai, managing director of Intelligence Automotive Asia Ltd., an automotive consulting company in London. “This will take pressure off further cuts, and hopefully to a slow recovery in the second half of the year.”

Toyota and Mazda, Japan’s two-biggest car exporters, plan to ease domestic production cuts that started last year after adjusting inventory. Toyota will relax the cutbacks from May, President Katsuaki Watanabe said last week. Mazda will resume production on Fridays at two of its four domestic plants for the first time in three months in April, it said on March 13.

U.S. Demand

If automakers fail to pare production cuts, it may threaten jobs. Nationwide March auto production needs to be half of last year’s rate to raise the fiscal year tally to 10 million, according to the automakers group. Automakers have said that annual production must top this level to safeguard employment. In the 11 months ended February, output totaled 9.44 million vehicles, down 12 percent from a year earlier.

Cars and light trucks sold at an annual pace of 9.12 million last month in the U.S., the biggest market for Japanese carmakers, a drop from 15.4 million a year earlier, according to Autodata Corp.

Toyota Production

Toyota’s domestic production last month plunged 64 percent to 141,127 the lowest level since the company began publishing tallies in 1976, it said March 24. Exports from Japan plunged 69 percent to 72,595.

Honda said production in Japan fell 48 percent to 54,748 vehicles. The drop was the biggest since it began releasing the figure in August 1996. Nissan, Japan’s third-largest automaker, reported a 69 percent fall in domestic production after exports slumped 78 percent. Nissan is cutting output by 64,000 vehicles in February and March.

Mazda, the largest car exporter after Toyota, built 60 percent fewer vehicles in Japan. Mitsubishi Motors, the maker of Pajero sport-utility vehicle, cut domestic production by 77 percent.

Japan’s five-year bonds rose, ending four days of losses, as a government report showing industrial output slid for a fifth month boosted demand for the relative safety of debt.

Five-year yields declined from a one-week high as stocks slipped after real-estate broker Azel Corp. filed for bankruptcy and an Obama administration official said General Motors Corp. and Chrysler LLC may face bankruptcy. The Bank of Japan’s Tankan survey due this week may show business sentiment dropped to the lowest level in 34 years, according to a Bloomberg News survey of economists.

“Incoming economic data will show the poor state of the Japanese economy,” said Akihiko Inoue, chief market analyst at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “Weak economic fundamentals support the bond market.”

The yield on the benchmark five-year note fell half 1.5 basis points to 0.77 percent as of 4:37 p.m. at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price of the 0.8 percent security due in March 2014 rose 0.072 yen to 100.143 yen. A basis point is 0.01 percentage point.

The yield on the benchmark 10-year note dropped half a basis point to 1.325 percent and 10-year bond futures for June delivery rose 0.09 to 138.30 at the afternoon close on the Tokyo Stock Exchange.

Industrial production slid 9.4 percent in February from the previous month, extending the longest losing streak since 2001, the Trade Ministry said in Tokyo. The Tankan sentiment index for large manufacturers slid to minus 55 in March, from minus 24 in December, according to the Bloomberg survey of 23 economists before the April 1 report.

‘More Tailwinds’

“If the headline number for large manufacturers slides to below a historical low, the bond market will see more tail- winds,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., a unit of the second-largest U.S. bank. “Japanese investors may also try to buy bonds once the new fiscal year starts on April 1.”

The gain in bonds was tempered by concern the supply of debt will keep increasing as the government raises record amounts to fund spending to counter the recession.

Japanese Prime Minister Taro Aso is compiling a third stimulus package to add to the amount pledged since he took office six months ago. The Ministry of Finance said in December it plans to boost bond sales by 7 trillion yen ($71.3 billion) to 113.3 trillion yen in the financial year beginning April 1.

“There is the risk of debt sales increasing by an additional 10 trillion yen stemming from the compilation of new pump-priming measures,” said Eiji Dohke, chief strategist in Tokyo at UBS Securities Ltd. “We will maintain a ‘sell on rally’ recommendation for longer-maturity bonds.”

U.S. Carmakers

Japanese bonds are headed for the first quarterly loss since the three months to June 30, and U.S. Treasuries are set for their worst start to the year since 1996, as the governments of the world’s two biggest economies increase debt sales to fund measures to combat the global recession.

Demand for fixed-income assets also rose as the Nikkei 225 Stock Average slid 4.5 percent on concern the global financial turmoil will worsen.

General Motors Corp. and Chrysler LLC must overhaul their recovery plans with deeper concessions to justify further taxpayer aid, and bankruptcy may ultimately be their best chance, the Obama administration official said before details of the plan are released today. The administration also asked GM Chief Executive Officer Rick Wagoner to step down, according to the official who declined to be identified.

“We need to ascertain further developments on this delicate issue carefully, especially how stock markets react to it,” said Katsutoshi Inadome, a Tokyo-based strategist at Mitsubishi UFJ Securities Co., a unit of Japan’s largest banking group. If the Chapter 11 filing “leads to a stock decline, it should support bonds,” he said.

Japanese industrial production fell for a fifth month in February, the longest losing streak since 2001, as exports collapsed.

Factory output declined 9.4 percent from January, when it plummeted a record 10.2 percent, the Trade Ministry said today in Tokyo. Inventories fell an unprecedented 4.2 percent.

Companies surveyed said they will increase production in March and April as they begin to replenish stockpiles they managed to get rid of even as demand evaporated. Manufacturers worldwide are cutting inventories, a sign that output may pick up later this year, providing relief for a global economy that is contracting for the first time in six decades.

“Production cuts may already be bottoming out,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. in Tokyo. “We should remember that that doesn’t necessarily mean overseas demand is already recovering.”

The yen traded at 98.15 per dollar at 10:16 a.m. in Tokyo from 98.08 before the report was published. The currency is heading for its worst quarter since 2001 as the world’s second- largest economy deteriorates faster than the U.S. and Europe. The Nikkei 225 Stock Average fell 1.2 percent.

Japan’s exports plunged a record 49.4 percent in February from a year earlier as sales of cars and electronics dried up. Toyota Motor Corp., forecasting its first net loss in more than five decades, plans to cut thousands of jobs and slash domestic production by half this quarter.

Tankan Survey

Sentiment among the nation’s largest manufacturers has fallen to its lowest level in more than 30 years, economists predict the Bank of Japan’s Tankan survey will show on April 1. The country’s largest firms plan to cut investment by 12 percent next fiscal year, the biggest pullback since at least 1983, economists predict the survey will show.

Prime Minister Taro Aso is preparing his third stimulus package since October to counter the slump. Finance Minister Kaoru Yosano said on March 22 that a plan of as much as 20 trillion yen, double the total amount pledged since October, is “not out of line” as the economy heads for its worst recession since 1945.

“The longer this stretches out, the harder the domestic economy is going to be hit,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “The government really needs to come out with another package.”

Spending Billions

Governments around the world are spending billions of dollars to spur domestic demand as global trade seizes up. Economists say a Japanese recovery hinges on whether a combined $1.4 trillion of spending in the U.S. and China, the country’s two biggest markets, is enough to revive demand for its cars and electronics in the second half of the year.

There are signs a recovery may be stirring in the U.S., Japan’s biggest market. U.S. orders for durable goods rose in February for the first time in seven months. Inventories of long-lasting durable goods fell for a second month and new home sales increased for the first time since July.

In Japan, the drop in inventories adds to evidence that the worst of the manufacturing slump may be over. Companies said they would increase production 2.9 percent this month and 3.1 percent in April, today’s survey showed.

Nippon Steel Corp. said last month output should improve next quarter because customers have used up their stockpiles. Nissan Motor Co., Japan’s third-largest automaker, said on Feb. 26 it will raise domestic production next month.

“Companies have succeeded, as you can see in today’s data, at cutting inventories back,” Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo, said on Bloomberg Television. “They’re starting to move production back more into line with demand, which is still depressed but obviously going to be a stronger level than the January- February period.”

No comments: