UH-OH: Japan's Industrial Production Unexpectedly Falls, Raising Doubts About Economic Recovery

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TOKYO (AP) — Japan’s factory production fell in February in its first decline in three months, the government said Friday, as demand for exports weakened, despite signs of modest improvements in employment and consumer confidence.The 1.2 per cent decline in industrial output in the world’s third-largest economy was worse than expected and reflected lagging output in the transport equipment, electronics components and machinery industries. Output of cell phones, large passenger cars and liquid crystal devices also weakened, the government said.

The devastating tsunami in March of last year — and a shift of manufacturing overseas to cut costs and reduce damage caused by the strong yen — plunged Japan’s trade account into the red in 2011 for the first time since 1980.

Slowing growth in powerhouse China, the debt crisis in Europe and continued frailty in the U.S. economy have bit into demand for exports, which remain the strongest driver of growth for Japan.

Japan’s economy shrank at an annual pace of 2.3 per cent in the fourth quarter, also hit by slowing public investment due to political bickering that delayed parliamentary approval for a 12 trillion yen ($156 billion) extra budget for tsunami reconstruction.

The economy contracted last year by 0.9 per cent from 2010, when GDP grew a robust 4.4 per cent. In 2009, the economy shrank 5.5 per cent.

But despite February’s relatively weaker output, output is forecast to rise 2.6 per cent in March and 0.7 per cent in April.

Japan’s growth is forecast to accelerate in the coming year as reconstruction picks up in the northeastern regions devastated by last year’s disasters.

In its latest economic assessment, the organisation of Economic Cooperation and Development forecast that Japan’s growth would lead that of other major industrial economies in the first quarter, at 3.4 per cent.

But the Paris-based OECD said growth would ease to 1.4 per cent in the second quarter, hobbled by rising oil prices and slowing trade.

In other data for February, Japan’s consumer price index showed a stronger than expected increase in February of 0.3 per cent from the year before, to 99.8. It was up 0.2 per cent from January.

Forecasts had been for virtually no change in the index.

Rising costs for fuel and food were the main factors pushing prices higher, the Statistics Bureau reported.

Although rising crude oil prices threaten to further push production prices higher, slight gains in inflation are viewed as a positive for an economy that has been wrestling for years with deflation, or falling prices, which can be a drag on economic growth.

Meanwhile, unemployment fell in February, to 4.5 per cent from 4.6 per cent in January.

The Ministry of Health, labour and Welfare reported that the ratio of job offers to job seekers rose to 0.75 in February, up from 0.73 in January. It was the highest figure since November 2008, the ministry said.

Such trends, and demand from the rebuilding effort, may have helped contribute to a rise in consumer confidence, reflected in stronger retail sales, the trade ministry reported Thursday.

Retail sales rose 3.5 per cent in February, up 0.2 per cent from the month before. It was the largest year-on-year gain since August 2010, the trade ministry said.

However, demand was also boosted by government subsidies for car purchases, which rose 21.4 per cent from a year earlier in February, after jumping 24 per cent in January.

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