• Kyodo

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Industrial production fell a seasonally adjusted 1.3 percent in August, declining for the second straight month on weakening exports to China and other countries, a preliminary report by the industry ministry showed Friday.

With the index of output at factories and mines falling to 90.5 against the base of 100 for 2005, the lowest since May 2011, the Ministry of Economy, Trade and Industry downgraded its basic assessment of output, saying it “appears to have weakened.”

“The data demonstrate that external demand is weak,” a METI official said, noting the territorial row with China over the Senkaku Islands may further weaken output in the next months.

The fall was largely attributed to sluggish production of electronic parts and devices used in smartphones and mobile phones for shipment to China and elsewhere. Operations at transport equipment makers also declined as funding for subsidies to promote the purchase of eco-friendly vehicles neared its end. The government has now stopped accepting applications for the program.

Looking ahead, manufacturers polled by METI anticipated that output will drop 2.9 percent in September but stay flat in October.

Economists also expressed wariness.

Kenji Tanaka of the Development Bank of Japan warned that with the government’s green car incentive program at an end, the economy will lack a key driving force once demand linked to rebuilding in the Tohoku disaster zone begins to falter.

“The eco-friendly car subsidy program and reconstruction demand have supported production since the start of the year. But the subsidy program ended Sept. 21 . . . and reconstruction demand is likely to peak by the end of this year,” Tanaka said in a report. “The environment surrounding exports is also tough, as the yen’s strength continues and overseas economies are slowing.”

Takeshi Minami, chief economist at the Norinchukin Research Institute, said “many uncertain factors” lie ahead, including the soaring tensions between Tokyo and Beijing over the Senkaku Isalnds.

“The possibility that output could further decline toward the latter half of the current fiscal year is increasing,” he cautioned.

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