Japan’s industrial output fell to a 15-month low last month, hit by sagging sales in its top export market China and confidence-sapping eurozone crisis, fueling concerns that the world’s third-largest economy could slip into recession later this year.
Japan has so far outperformed most of its peers in the G7, helped by rebuilding from last year’s earthquake and tsunami, but with that effect fading domestic demand is no longer strong enough to make up for falling exports.
Industrial output fell 1.3 percent last month dragged down by cuts in production of electronics parts and cars.
The fall was deeper than a 0.5 percent drop expected by economists, marking a second consecutive decline after a 1.0 percent drop in July, government data showed.
In a sign of more pain to come, manufacturers surveyed by the Japanese Ministry of Economy, Trade and Industry predicted output to fall 2.9 percent this month and merely stabilize next month. That would spell a second straight quarter of declines raising the likelihood that the economy as a whole could contract in the JulySeptember quarter.
Commenting on the data, the ministry said the level of output was the lowest since May last year and cut its assessment to say industrial production was now in a weakening trend. Previously it said output had stabilized.
The Bank of Japan (BOJ) eased policy last week by boosting bond purchases and warned economic recovery predicted for the latter part of this year could get pushed back by six months.
Meanwhile, the purchasing managers index for this month showed manufacturing activity had shrunk for four straight months, suggesting that industrial output could fall in July-September.
The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 48.0 in September from 47.7 last month, in a tentative sign that weak overseas demand may have stabilized.
Still, the data showed that activity has contracted for four straight months.
Highlighting persistent deflation which has plagued Japan much of the past decade, the core consumer price index fell 0.3 percent in the year to last month, more than expected, separate data showed. Overall consumer prices fell 0.4 percent.
The drop in the core index, which includes oil products but excludes volatile prices of fresh fruit, vegetables and seafood, compared with a 0.2 percent fall expected by economists.
Faced with pressure for bolder action, the BOJ set a 1 percent inflation target in February and boosted asset purchases so far three times this year, each time adding ￥10 trillion (US$128.6 billion) to its monetary stimulus.
However, with the end of deflation still not in sight the BOJ remains under pressure to keep pumping funds into the economy.
Japan’s growth slowed to 0.2 percent in April-June from 1.3 percent in January-March.
Analysts expect it could stall for the rest of this year as stimulus-driven spending on such items as subsidized low-emission cars fades, reconstruction-related demand wanes and exports struggle.