Output fall clouds recovery

by Keiko Ujikane and Toru Fujioka

Bloomberg

Industrial production unexpectedly dropped in February, undercutting signs of an economic rebound in the first quarter as policymakers assess whether to apply further stimulus.

Factory output slid 1.2 percent from the previous month, the Ministry of Economy, Trade and Industry said Friday, after a 1.9 percent gain in January. The median estimate in a Bloomberg survey was for a 1.3 percent increase. The unemployment rate fell to 4.5 percent and consumer prices excluding fresh food unexpectedly rose 0.1 percent, government reports showed.

The Bank of Japan has come under pressure by a group of lawmakers to bolster stimulus efforts, with a board member this week questioned on the idea of adopting a Federal Reserve-style “operation twist,” swapping short-term bonds for longer-term securities. While the first gain in five months in consumer prices prompted the yen to strengthen, inflation remains distant from the 1 percent goal the BOJ announced last month.

“They’ll have to maintain their easing stance for a while to prop up the economy,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo, referring to BOJ policymakers. “A slight increase in prices won’t make the BOJ optimistic.”

Policymakers are counting on reconstruction spending after last year’s earthquake and tsunami to help propel the rebound from a contraction in 2011. Gross domestic product may expand an annualized 1.7 percent this quarter after a 0.7 percent contraction in the final three months of last year, according to the median estimate in a Bloomberg News survey of analysts.

Elsewhere in Asia, South Korea reported a slower gain in industrial output. Revised figures for the nation’s fourth-quarter gross domestic product showed 0.3 percent growth from the previous three months, less than a previous estimate of 0.4 percent.

“We’re apparently going through a trough, but the speed and magnitude of an economic recovery highly hinges on global demand,” Yoon Yeo Sam, a fixed-income analyst at Daewoo Securities Co. in Seoul, said before the data.

The eurozone is due to report an inflation estimate, with a 2.5 percent annual rate likely for March according to the median forecast in a Bloomberg News survey of economists. Germany reports retail sales on Friday and France also gives details on consumer spending.

In the U.S., the final reading for the Thomson Reuters/University of Michigan measure of consumer sentiment for this month is due and Canada will report GDP for January.

In Japan, some lawmakers have been calling on the central bank to ease policy further after it expanded its asset-purchase facility in February and set the 1 percent inflation target. Answering politicians questions in the Diet, BOJ Deputy Gov. Kiyohiko Nishimura said in the Diet on Wednesday that implementing a Japanese version of the Federal Reserve’s maturity extension program for its bond holdings won’t be necessary.

Weakness in demand in Asia and Europe makes it difficult for exports and output to gain momentum, according to Yoshimasa Maruyama, an economist at Itochu Corp. in Tokyo.

Exports to China, Japan’s largest overseas market, fell 14 percent in February from a year earlier, the fifth consecutive decline, according to government data. Komatsu Ltd.’s excavator sales in China fell 40 percent in February from a year earlier, President Kunio Noji said Feb. 23.

At the same time, there are signs that the slump in output reported Friday may be only be temporary. Manufacturers planned to up output 2.6 percent in March and 0.7 percent in April, Friday’s report showed.

Mitsumaru Kumagai, chief economist at Daiwa Institute of Research in Tokyo, said the decline reported Friday was the aftermath of a temporary lift when output bounced back after disruptions to manufacturers from flooding in Thailand ended. The government also said data have been affected by the Leap Year.

A decline in the yen against the dollar from a postwar high in October last year and earthquake reconstruction work are aiding an economy that contracted in the fourth quarter.

“Japan’s recovery will continue to pick up in the first half of this year,” said Shuichi Obata, senior economist at Nomura Securities Co. “Growth in production for March and April will absorb a decline in February.”

Jobless rate falls to 4.5%

Kyodo

The unemployment rate dropped to a seasonally adjusted 4.5 percent in February as upward momentum in the economy, including a recovery in production, helped log the first improvement in five months, the government said Friday.

The drop from January’s jobless rate of 4.6 percent nearly matched the forecasts of private-sector economists.

The number of people employed rose by 290,000, or 0.5 percent, to reach 62.88 million compared with the previous month, the Internal Affairs and Communications Ministry said in a preliminary report.

Separate data showed that job availability improved for the ninth consecutive month, with the ratio of job offers to job-seekers rising to 0.75 from 0.73. This means 75 positions were available for every 100 people seeking jobs, the Health, Labor and Welfare Ministry said.

The February data suggested “the possibility that a recovery in domestic production and stably increasing job offers have united in creating employment,” economists at Nomura Securities Co. said in their report.

The government added to the optimistic view. An official from the internal affairs ministry said the improvement in the jobless rate came against the backdrop of “a pickup in industrial output amid signs of recovery in the overall economy.”

But the February production data, also released Friday, cast a shadow over the continued improvement in the unemployment rate, which normally reflects development lagging behind production figures.

The improving employment conditions in the reporting period were also supported by growing demand for labor in northeastern Japan, where reconstruction work has accelerated since the March 2011 earthquake and tsunami, the official added.

The jobless rate for men dropped to 4.7 percent from 4.9 percent, while the rate for women slid to 4.2 percent from 4.4 percent. The number of unemployed dropped 70,000, or 2.3 percent, to 2.98 million.

New job offers strongly expanded in such sectors as construction and automobiles compared with a year earlier. But negative implications were seen in high-tech industries, such as electronics makers, apparently due to slowing exports amid gloomier prospects for a global economy in light of the continuing sovereign debt crisis in Europe.