Japan's industrial output dived at a record pace and core consumer inflation fell faster than forecast in November, putting the shrinking economy on course for a spell of deflation next year.
The grim outlook could push the Bank of Japan to implement unorthodox monetary easing measures as it has little room left to cut interest rates after reducing them to 0.10 per cent last week. Japan's Economics Minister Kaoru Yosano also said Tokyo would act flexibly on possible additional fiscal measures if economic conditions deteriorate further. With much of the developed world in recession and emerging economies quickly losing steam, many analysts think Japan's export-oriented economy could go through one of its sharpest contractions ever this quarter and next.
"Production is falling off a cliff," said Naoki Iizuka, senior economist at Mizuho Securities. "The Japanese economy is unlikely to bottom out until October-December next year as output is expected to remain very weak until then."
Industrial output fell 8.1 per cent last month from a month earlier, posting the largest fall on record and exceeding a median market forecast for a 6.8 per cent drop.
Even after that tumble, output is expected to fall a further eight per cent in December and 2.1 per cent in January, data from the Ministry of Economy, Trade and Industry showed yesterday.
That means industrial output, a key harbinger of the nation's overall economic performance, may log its largest quarterly fall on record in the three months to December, after three straight quarters of decline.
A tumble in global demand and the recent rise of the yen have pummelled Japanese exporters, forcing Toyota, the world's most profitable car maker until recently, to forecast its first consolidated operating loss and warn of an unprecedented emergency.
"Production is falling like Niagara Falls. What's going on now is beyond what Toyota and Sony had ever imagined. They just can't have a plan for the future now," said Mitsuru Saito, chief economist at Tokai Tokyo Securities.
Mr Yosano told Reuters in an interview that the government would be flexible about more spending to shore up the economy.