Japan output logs record fall

Output figures for March are much worse than expected,but we are seeing some bright signs for the outlook.

Japanese factory output fell at a record pace in March but manufacturers expect production to rise in coming months,a sign that output could bounce back earlier than expected as companies mend supply chains and secure parts needed for their goods after last month’s devastating earthquake.

Still,capacity utilisation could remain low as companies try to save energy during an expected power supply crunch in the summer months,providing little comfort to firms abroad that rely on Japanese products.

The Bank of Japan retains the option of increasing asset purchases to help the economy,but much of the burden will fall on the government to lay out a detailed plan to rebuild damaged areas,bolster manufacturing infrastructure and ensure stable supplies of electricity.

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Industrial output fell 15.3 percent in March,more than a median market forecast of an 11.0 percent drop and exceeding the previous record decline marked during the Lehman crisis in 2009,data from the Ministry of Economy,Trade and Industry showed.

But manufacturers surveyed by the ministry expect output to rise 3.9 percent in April and increase 2.7 percent in May,data showed on Thursday,although the forecasts may not have fully taken into account the damage from the quake.

Output figures for March are much worse than expected,but we are seeing some bright signs for the outlook. The production outlook for machinery looks strong for April,said Masaru Hamasaki,senior strategist at Toyota Asset Management.

Despite recoveries in April and May,production is expected to be lower on a quarterly basis even if we see a recovery in June. Considering that this data was taken only one month after the disaster,it’s possible that we can see a sharp revision both ways.

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A separate private survey showed manufacturing activity contracted in April,languishing at a two-year low as last month’s earthquake and tsunami damaged factories and disrupted supply chains.

Reflecting worsening sentiment after the quake,household spending fell a record 8.5 percent in March from a year earlier,exceeding a median forecast for a 6.4 percent drop.