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Tue, Aug 01, 2006 - Page 10 News List

Japan's industrial output rises in June

RESTRAINEDWhile the June growth rate of 1.9 percent beat expectations, analysts advised caution as a slowing US economy could slow the country's recovery


Japan's industrial output returned to its expansionary trend in June with better-than-expected growth of 1.9 percent month-on-month as the economy continued its steady recovery, official figures showed yesterday.

The index measuring output at mines and factories rose at its fastest rate in seven month to 105.7 against 100 for the base year of 2000, the Ministry of Economy, Trade and Industry said.

Year-on-year, output was up 4.8 percent in June, the trade ministry said, also giving upbeat projections for the next two months.

Industrial production was expected to rise 2.2 percent month-on-month last month and by a further 3.7 percent this month, the ministry said, noting industrial production is "on an upward trend."

The June increase reversed May's fall of 1.3 percent, which was the first decline in three months, and beat market expectations of a 1.2 percent rise.

Analysts said that the data suggested the world's number two economy continues to make a slow but steady recovery after a slump stretching back over a decade, although a cooling of the US economy was likely to slow Japan's revival.

"While June output is robust, if you look at the quarterly changes you can't say growth is accelerating," said BNP Paribas economist Yoshimasa Maruyama.

"Together with slowing growth in exports and the cooling US economy, the overall picture of the Japanese economy is not as strong as the impression given by the June output figure," Maruyama said.

The rebound came after the drop in May that reflected the end of the World Cup effect, which had boosted sales of digital electronic appliances such as flat panel televisions ahead of the tournament in June.

Japan's economy is on track to achieve its longest sustained recovery since the end of World War II as strengthening domestic demand helps drive an upturn that has long relied mainly on robust exports to the US.

"There are no worries that the Japanese economy might collapse if [the US] slows down because weakening demand overseas can be offset by resilient domestic demand," said Katsuhiro Oshima, an economist at Mitsubishi Research Institute.

Figures on Friday showed that the US economy slowed sharply to 2.5 percent annual growth in the second quarter from 5.6 percent in the first quarter as the key housing market began to slip badly.

Maruyama sounded a note of caution about the rosy outlook for industrial output this month and next, which he said relied on the electronic parts and devices sector, where rising inventories are a worry.

Inventories rose 0.5 percent in June from May, the first increase in three months. Transport equipment, electronic parts and petroleum and coal products were the sectors that contributed most to the increase in inventories.

Japan's economy grew at a 3.1 percent year-on-year pace in the quarter to March, setting the scene for the central bank to raise interest rates for the first time for almost six years on July 14.

The outlook for further monetary tightening by the Bank of Japan as well as prospects for the US economy are key factors for the local outlook, analysts said.

"The Bank of Japan might want to raise its key rate for a second time during the July-September period, but I think it can't do it as a result of the cooling US economy," Maruyama said.

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