Japan’s Production Slumps to 2011 Quake-Aftermath Low: Economy

Kiyoshi Ota/Bloomberg

Containers are stacked at a shipping terminal in Tokyo, Japan. Japan's exports fell for a sixth month in November and the trade deficit swelled, underscoring the challenge that incoming Prime Minister Shinzo Abe faces in reviving growth.

Japan’s industrial output tumbled more than forecast to the lowest level since the aftermath of the record 2011 earthquake, bolstering the case for Prime Minister Shinzo Abe to unleash large-scale stimulus.
The 1.7 percent drop in November from October exceeded all 27 forecasts in a Bloomberg News survey, a government report showed today in Tokyo. The nation also remained mired in deflation, with consumer prices excluding fresh food dropping 0.1 percent from a year before, compared with a central bank goal of 1 percent and Abe’s desired target of 2 percent.
With neighbor South Korea reporting a jump in production almost double the highest estimate among economists surveyed, Japan’s data may strengthen the new Abe administration’s determination to drive down the yen and force the Bank of Japan (8301) to add monetary stimulus. On the fiscal front, Abe has told ministries to compile emergency spending proposals by Jan. 7.
“Weakness in exports is the major drag on Japan’s economy,” said Yoshimasa Maruyama, chief economist at Itochu Corp. (8001) in Tokyo. “Given the weak state of the economy, Abe’s government may need a large-scale stimulus program to boost growth.”
Maruyama sees 5 trillion yen ($57.8 billion) to 10 trillion yen of initial support measures and says that it’s “almost a done deal” that the BOJ will move to a more aggressive inflation target in January.
The MSCI Asia Pacific Index gained 0.4 percent as the Nikkei 225 Stock Average climbed 0.7 percent to close with the biggest annual gain since 2005. The yen weakened to the lowest since August 2010 amid speculation of more stimulus.

Fiscal Steps

Retail sales stagnated in November, a separate report showed in Tokyo today, while the jobless rate was 4.1 percent. The seasonally adjusted industrial production index fell to 86.4, the lowest level since April 2011.
“Monetary policy will be loosened further, while Abe will introduce big fiscal pump-priming,” said Kiichi Murashima, chief economist at Citigroup Inc. in Tokyo.
Japan’s economy contracted for the two quarters through September, meeting the textbook definition of a recession. Gross domestic product may shrink an annualized 0.5 percent in the final three months of this year, according to the median forecast in a Bloomberg News survey. Exports slid for a sixth month in November on Europe’s crisis and tensions with China.
In contrast, South Korea’s industrial output exceeded estimates in November and the nation’s current-account surplus rose to a record, signaling that a growth recovery may take hold in Asia’s fourth-largest economy.

Korean Gains

South Korea’s output rose 2.3 percent from October when it advanced 0.7 percent, Statistics Korea said today. The median estimate of 10 economists in a Bloomberg News survey was for a 0.8 percent gain. The surplus was $6.9 billion.
Improvements in the U.S. economy and signs of a rebound in China are brightening the outlook for South Korea’s shipments even as austerity measures in Europe set limits. President-elect Park Geun Hye, who will take office in February, may oversee a 3 percent economic expansion next year after 2.1 percent growth in 2012, according to Finance Ministry estimates.
Elsewhere in Asia today, China Commerce Minister Chen Deming said 2012 foreign trade growth may be about 6 percent, the official Xinhua News Agency reported. Foreign direct investment may be $110 billion this year, it said. Thailand posted a current-account surplus of $392 million in November.
In France, the number of people actively looking for work rose to the highest since April 1998 in November while a final reading of the nation’s gross domestic product last quarter will probably show a 0.2 percent expansion, a Bloomberg News survey showed. Retail sales probably fell in Spain and rose at slower pace in Sweden from a year earlier, separate surveys showed.
The U.S. will report pending home sales.