TOKYO—Data released by the government Friday showed that Japan's economy may be slowing more than expected and could possibly move into a recession.
Hit by headwinds from overseas, Japanese industrial production in August was down 1.3% from a month earlier—a much steeper drop than the 0.4% forecast of economists surveyed by Dow Jones Newswires and the Nikkei, and the fourth decline in the past five months.
The core consumer price index in August was down 0.3% from a year earlier, the fourth straight month of decline, as deflationary pressures continued to act as a drag on the economy.
"Find someone who is optimistic about the economy and ask them how they can be," said Masamichi Adachi, senior economist at JPMorgan Securities Japan Co., adding that the possibility of the Japanese economy moving into a recession would increase if growth did not pick up in 2013.
The weak data add to recent evidence that Japan's export-led economy may not be immune to the global slowdown, particularly as China's economy slows.
"The economic conditions of our export markets are extremely unstable," Japanese Finance Minister Jun Azumi said during a news conference.
"There are downside risks to our economy." The industrial-production figures prompted the Ministry of Economy, Trade and Industry to downgrade its assessment of industrial production for the second time in 2012.
METI now sees a weakening trend due to sluggish exports, especially to China, a ministry official told reporters in a briefing.
A survey of manufacturers released with the production data showed that companies expect output to fall 2.9% in September before flattening in October.
Mizuho Research Institute economist Hidenobu Tokuda warned that domestic demand, which had been supporting production as overseas demand weakened, was also likely to weaken, particularly after budgeted funds for subsidizing fuel-efficient vehicles finally ran out last week. The subsidies had helped boost car sales.
Demand from reconstruction following the destruction from last year's earthquake and tsunami "might be a slight support for growth, but in terms of domestic demand, the negative factors are going to be greater than the positives," Mr. Tokuda said, adding that the economy as a whole was likely to be "weak" through the end of the year.
Mizuho Securities Research and Consulting senior economist Norio Miyagawa said the increasing tension with China over a territorial dispute represented a longer-term risk.
"If the current dispute with China becomes prolonged, it will damage Japan's output and the economy," he said.
The 0.3% fall in core CPI was worse than expected as gasoline and television prices fell. The sustained negative CPI is increasing pressure on the Bank of Japan, which has set a goal of a 1% annual inflation rate, to take stronger anti-deflation steps.
The central bank's monthly report for September forecasts that the CPI will remain around zero for the time being.
Other figures released Friday showed that the country's jobless rate was 4.2% in August, down from 4.3% in July, although the fall was mostly due to people's giving up their hunt for work, an official briefing for reporters said.
Economists also said the unemployment figure number is unlikely to worsen much unless economic conditions deteriorate substantially, as companies will be reluctant to cut back staff.
On a positive note, retail sales in August were up 1.8% from a year earlier, after a fall in July. Auto sales led the way, up 20%, while machinery sales were off 10%.
wsj.com
Hit by headwinds from overseas, Japanese industrial production in August was down 1.3% from a month earlier—a much steeper drop than the 0.4% forecast of economists surveyed by Dow Jones Newswires and the Nikkei, and the fourth decline in the past five months.
The core consumer price index in August was down 0.3% from a year earlier, the fourth straight month of decline, as deflationary pressures continued to act as a drag on the economy.
"Find someone who is optimistic about the economy and ask them how they can be," said Masamichi Adachi, senior economist at JPMorgan Securities Japan Co., adding that the possibility of the Japanese economy moving into a recession would increase if growth did not pick up in 2013.
The weak data add to recent evidence that Japan's export-led economy may not be immune to the global slowdown, particularly as China's economy slows.
"The economic conditions of our export markets are extremely unstable," Japanese Finance Minister Jun Azumi said during a news conference.
"There are downside risks to our economy." The industrial-production figures prompted the Ministry of Economy, Trade and Industry to downgrade its assessment of industrial production for the second time in 2012.
METI now sees a weakening trend due to sluggish exports, especially to China, a ministry official told reporters in a briefing.
A survey of manufacturers released with the production data showed that companies expect output to fall 2.9% in September before flattening in October.
Mizuho Research Institute economist Hidenobu Tokuda warned that domestic demand, which had been supporting production as overseas demand weakened, was also likely to weaken, particularly after budgeted funds for subsidizing fuel-efficient vehicles finally ran out last week. The subsidies had helped boost car sales.
Demand from reconstruction following the destruction from last year's earthquake and tsunami "might be a slight support for growth, but in terms of domestic demand, the negative factors are going to be greater than the positives," Mr. Tokuda said, adding that the economy as a whole was likely to be "weak" through the end of the year.
Mizuho Securities Research and Consulting senior economist Norio Miyagawa said the increasing tension with China over a territorial dispute represented a longer-term risk.
"If the current dispute with China becomes prolonged, it will damage Japan's output and the economy," he said.
The 0.3% fall in core CPI was worse than expected as gasoline and television prices fell. The sustained negative CPI is increasing pressure on the Bank of Japan, which has set a goal of a 1% annual inflation rate, to take stronger anti-deflation steps.
The central bank's monthly report for September forecasts that the CPI will remain around zero for the time being.
Other figures released Friday showed that the country's jobless rate was 4.2% in August, down from 4.3% in July, although the fall was mostly due to people's giving up their hunt for work, an official briefing for reporters said.
Economists also said the unemployment figure number is unlikely to worsen much unless economic conditions deteriorate substantially, as companies will be reluctant to cut back staff.
On a positive note, retail sales in August were up 1.8% from a year earlier, after a fall in July. Auto sales led the way, up 20%, while machinery sales were off 10%.
wsj.com
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