Hopes rise with Japan's industrial output


Japan's industrial production in March rose for the second straight month

Staff and wires

TOKYO, Japan -- Japan's industrial production rose in March for the second straight month, according to government figures released Tuesday.

The Ministry of Economy, Trade and Industry (METI) said March factory output was up 0.5 percent over February on the back of rising exports and an end to inventory drawdowns.

The data is the latest indicator to suggest a recovery in the world's second-largest economy may be imminent.

Last week Japan's jobless rate fell to 5.2 percent, improving from a post-war high of 5.5 percent reached in December.

On April 25 Japan confirmed its gross domestic product shrank 1.2 percent in the December 2001 quarter from the previous quarter.

Difficult task ahead

But the output figures released Tuesday raises the prospect that GDP for the March quarter, due out in about a month, may show a rise after three consecutive quarters of contraction.

The data comes as observers are warning that the Japanese economy faces a difficult and delicate task in extricating itself from recession.

The International Monetary Fund said in its global outlook on April 18 that Japan's short-term prospects remained a "source of considerable concern", with output likely to fall 1 percent this year.

IMF senior adviser David Robinson told CNN last week that while the fund agreed with Prime Minister Junichiro Koizumi's fiscal reform measures in the medium term, there was concern that "too much too soon" could choke off recovery in Japan.

Economists cite an end to inventory drawdowns and a pickup in Japan's exports thanks to a global recovery and a weaker yen as the main reasons behind the upturn in industrial output.

Popularity falling


Koizumi's popularity has fallen sharply

Deflation, high unemployment, declining consumer demand, a string of corporate collapses and a banking system burdened with massive bad loans are just some of the problems that confront the Koizumi administration.

Another factor is the fall in Koizumi's popularity rating, which has halved to about 40 percent in the year since he took office.

Still, data last week showed Japan's trade surplus in March rose 39 percent from a year earlier.

The March industrial production figures followed a revised 1.2 percent increase in February.

"The 0.5 percent rise is in line with the consensus. If you look at the April and May forecasts for manufacturers' output, the data showed strong results," Tomoaki Shishido, an economist at Nomura Research Institute, told Reuters news agency.

Exports 'stronger than expected'

"Exports are stronger than we had expected and output is firm. The economic recovery may turn out to be stronger than we had expected, led by external demand," Shishido said.

METI forecast manufacturers' output -- a key component and close proxy of industrial production -- would rise 1.3 percent in April and 3.1 percent in May, Reuters reported.

The Bank of Japan's Policy Board meets Tuesday and will announce its decision on monetary policy later in the day, but is widely expected to leave its super-easy stance unchanged.

Economists say the key to a sustained recovery will be whether companies lift capital spending later this year and whether labor market conditions improve and loosen consumers' purse strings.