TOKYO (MNI) – Japan’s industrial output tumbled at a record pace in
March and households slashed spending as the last month’s quake
disrupted supply chains, while discouraging consumer confidence and
prospects for the job security, the latest government data showed.
But last month’s set-back is expected to be only the beginning of
additional economic pain going forward as the government and
private-sector continue to struggle to restore ruined supply chains and
brace for power shortages.
Due to the spreading fall-out from the March 11 earthquake, the
Bank of Japan’s nine-member policy board cut its growth forecast for
fiscal 2011 to only 0.6% from 1.6% gain projected in January.
In response to the weaker outlook, BOJ Deputy Governor Kiyohiko
Nishimura proposed at today’s BOJ board member a hike in the central
bank’s asset-buying program by additional Y5 trillion, after the
Japanese central bank boosted the amount by similar Y5 trillion to Y40
trillion at the March meeting.
But Nishimura’s proposal was soundly defeated by a vote of 8 to 1,
even as the board agreed unanimously to leave the overnight call rate
target in a range between zero and 0.1%.
Production at the nation’s factories and mines plunged a record
15.3% month-month in March on a seasonally adjusted basis, bringing the
industrial output index to 82.9, the lowest since July 2009, according
to data from the Ministry of Economy, Trade and Industry.
The March headline figure was weaker than most economists expected,
with the median forecast in a Market News International survey calling
for a 11.0% fall.
In March, output of transportation equipment — mostly automobiles
— plunged 46.4% from February, the largest drop on record, following a
5.1% rise in the previous month.
“While private-sector firms are now stepping up their efforts to
fix destroyed production facilities and supply chains, it will take some
before they can normalize them,” said Junko Nishioka, chief economist at
RBS Securities here.
“It may take 12 months or so before industrial output can recover
to the pre-crisis level,” she said.
Major manufacturers has resumed work at 64% of their production
facilities in areas affected by the March 11 disaster, with an
additional 30% expected to come online in the next one to three months,
according to a survey conducted between April 8 and 15 by the Ministry
of Economy, Trade and Industry.
But Toyota Motor Corp, the world’s largest automaker, said it can’t
resume full production either at home or overseas until November or and
December this year due to parts shortages caused by the quake.
Toyota had launched production cutbacks in Japan and key markets
around the world, including the U.S. and China, which has brought its
output down to 50% of normal volume in many areas.
As the fall-out from the March 11 earthquake spread, new vehicle
sales in Japan fell in March at their fastest pace in nearly 37 years.
New vehicle sales tumbled 37.0% from a year earlier to 279,389 last
month, the second largest drop on record, according to the latest data
from the Japan Automobile Dealers Association.
“The supply chain problem in the auto and electronics device
sectors is also likely to hamper export activity throughout the summer,”
said Junichi Makino, chief economist at SMBC Nikko Securities.
The government said last week that the nation’s trade surplus
plunged by 78.9% in March from a year earlier, as exports logged the
first year-on-year decline in 16 months.
The devastating earthquake also hit the household sector severely.
Japan’s average household spending fell a real 8.5% in March from a
year earlier, the sixth consecutive y/y drop, according to today’s
report from the Ministry of Internal Affairs and Communications.
A separate report Wednesday showed retail sales plunged 8.5% last
month from a year earlier, the second largest drop on record.
For a few weeks after the massive earthquake and tsunami hit
Japan’s northeastern Pacific coast, consumers across the nation reduced
spending out of respect for the victims. Power outages and fears of
spreading nuclear radiation leaks also made people cautious about
spending in general.
“As the quake added to the murky outlook for corporate activity,
consumers were already turning defensive about buying durable goods,”
said Junichi Makino, chief economist at SMBC Nikko Securities.
“Household spending is most likely to drift sideways until around
early autumn amid uncertainties about the recovery of the corporate
segment,” he said.
Japan’s seasonally adjusted Consumer Confidence Survey index
tumbled to 38.6 in March, the lowest since June 2009, according to the
recent survey by the Cabinet Office.
Economists also noted that lingering electricity power shortage are
an additional stumbling block to a resumption of steady growth going
forward.
“The power shortage problem is likely to hamper not only a recovery
in industrial production but also household spending on services, at
least until around September this year when the balance of supply and
demand for electricity normally improves,” SMBC’s Makino said.
An industry group which includes Toyota Motor Corp, Nissan Motor Co
and other top automakers plans to adopt simultaneous back-to-back
weekday holidays this summer to slash power consumption, the Nikkei
reported recently.
The Japan Automobile Manufacturers Association’s plan calls for
running factories on weekends, when power demand is lighter, and instead
having workers take two straight weekdays off, the business daily said.
Some 12 large manufacturers are expected to join this effort, which
will cover 13 factories in the regions serviced by quake-hit Tokyo
Electric Power Co and Tohoku Electric Power Co, according to the Nikkei.
Tokyo Electric Power Co said it aims to boost its power supply
capacity to 55 million kilowatts by the end of July, up 3 million
kilowatts from its recent target. However, the supply capacity will
still be below peak demand, which is expected to be around 60 million
kilowatts.
“Given strains stemming from the bottleneck in supply chains and
power supply concerns, Japan’s gross domestic product is likely to log a
whopping contraction of 5.8% at an annualized rate in the April-June
quarter,” RBS’s Nishioka predicted.
“In addition, the latest set of economic data also indicates
downside risks to our earlier projection for an annual GDP contraction
of 1.2% in the January-March quarter,” she added.
tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **
[TOPICS: M$J$$$,M$A$$$,MAJDS$,MT$$$$]