Japan gets ray of hope in dark economic cloud


The government predicts that production will rise again for January, suggesting the economy may have bottomed

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan -- Industrial production picked up 2.1 percent in December, over the previous month, the government said Tuesday.

That was a welcome spot of good news on a day Japan's jobless rate hit an unprecedented 5.6 percent.

Overall, industrial production still dropped 2.3 percent in the fourth quarter, over the previous quarter, for the fourth down quarter in a row.

But the short-term trend is encouraging. The Ministry of Economy, Trade and Industry, which put out the production statistics, also predicted a 1.4 percent rise in production for January.

Manufacturers seem to have worked their inventory backlog down to a manageable level, J.P. Morgan economist Ryo Hino noted in a report.

But inventories are still high, and Japanese businesses have been overly optimistic in their forecasts in the past. So economists say the situation needs monitoring.

"Economic data such as industrial production seem to be undergoing a sea change in that the results have gone from nearly categorically abysmal to fairly mixed, which is a common characteristic when the economy approaches a turning point," Hino said.

All categories of goods up

It is too early to champion a recovery, he added. Some other forward-looking statistics such as machinery orders still point to worse times ahead for Japan.

But the industrial production figures suggest that Japan's economy may be reaching some kind of bottom.

Shipments rose 1.8 percent over November. And all major categories of goods saw production rise in December, with consumer durables showing a particularly strong 3.7 percent rise.

The recent slide of the Japanese yen is expected to prove a boon to exporters, who are seeing their goods get cheaper overseas. Exports traditionally lead any comeback in Japan's economy.

Still, Japan is suffering through its second recession in three years. That drove the jobless rate up 0.1 percent, to 5.6 percent, other data showed on Tuesday. Manufacturing jobs were particularly hard hit.

Ron Bevacqua, Commerz Securities chief Japan economist, warned that Japan risks getting into an uncontrollable deflationary spiral.

Prices and retail sales are falling, making it hard for companies to earn their traditional profit margins on the goods they produce.