Japan’s factory output posts longest rise since 1997

Japan’s factory output rose for a sixth straight month in August, the longest unbroken expansion in 12 years, as Asia’s biggest economy limps out of its worst slump in decades, data showed yesterday.

With the giant auto industry recovering more strongly than expected, world number one Toyota Motor said it would take on 1,600 temporary workers from this month - twice as many as previously planned.

Japanese car makers are ramping up their output again after idling plants and firing thousands of workers in response to a slump in demand.

That helped Japan’s industrial output to rise by 1.8 per cent in August from July, led by higher production of cars, electronics and machinery, official figures showed.

Manufacturers painted a bright picture of the outlook, predicting factory output would rise 1.1 per cent in September and a further 2.2 per cent this month, the industry ministry said.

“We are starting to see some green shoots,” said Randall Jones, an economist with the Organisation for Economic Cooperation and Development. “We think that in the second half of 2009 there will be positive growth in Japan.”

Next year the Japanese economy will grow by 0.9 per cent, after a brutal six per cent contraction this year, the OECD predicted yesterday, urging the authorities to keep up their stimulus measures.

Japan’s factory output was still down 18.7 per cent in August compared with a year earlier, reflecting a plunge in production at Japan’s plants and factories since the global economic downturn began.

The recovery in output seen since March is likely to lose steam as the effect of government economic stimulus measures declines, said Daiwa Institute of Research economist Hiroshi Watanabe.

“The pace of recovery in the overall economy is likely to slow,” he said.

Vehicle production was down 25.9 per cent in August from a year earlier, the Japan Automobile Manufacturers Association reported.

But the year-on-year fall slowed for a sixth straight month. At the height of the crisis in February, Japan’s auto output had been down 56.2 per cent.

Japan sank into recession in the second quarter of 2008 as its exporters reeled from a slump in demand in overseas markets.

Its economy grew in April-June for the first time in five quarters, but the unemployment rate is at a record high and deflation is deepening amid weak domestic demand, while a strong yen is threatening exports.

Much of the rebound has been fuelled by government stimulus spending and there are worries about what will happen when the positive effects fade.

“The Japanese economy is likely to enter a period in the first half of 2010 when growth turns flat,” said Barclays Capital economist Kyohei Morita.

“However, we do not expect the economy to stall,” he added.

The Bank of Japan needs to maintain its policy of super-cheap credit and the government should make fighting the recession a priority, ahead of tackling the soaring national debt, the Paris-based OECD said.

“It is important not to withdraw stimulus too quickly, because there are still many risks in the global economy,” said Mr Jones. “The fiscal situation is a concern, but the first priority has to be to get out of this recession.”

The central bank’s quarterly Tankan business survey today is expected to show a further improvement in sentiment among corporate executives over the past three months.

The last survey in June showed business confidence among major Japanese manufacturers had improved for the first time in two-and-a-half years.