Japan industrial output edges up

Japanese IIP rose 0.5 pct in Oct and manufacturers forecast further rises in following months.

Japanese industrial output rose 0.5 per cent in October and manufacturers forecast further rises in the following two months,easing some concern that the economy could slow to a standstill or even contract early next year.

But the yen’s rise to a 14-year high against the dollar last week is hurting Japanese manufacturers’ profitability and could derail an export-drivenrecovery in the economy.

The government is considering including measures to deal with the recent surge in the Japanese yen in an economic stimulus package it plans to compile this week.

Story continues below this ad

“Given the yen’s appreciation and the Dubai credit scare,companies may cut capital spending further in future. The Bank of Japan,as a result,is likely to come under pressure to respond to this new phase of economic worries,” said Yasuhiro Onakado,chief economist at Daiwa SB Investments.

The government,worried about the risk of another recession,is putting pressure on the BOJ to do its part to support the economy,although the central bank has said there is little it can do beyond keeping rates very low to push up prices.

But with pressure mounting for further action,BOJ Governor Masaaki Shirakawa may use stronger phrasing than usual to describe the central bank’s concerns about deflation when he speaks in Nagoya,central Japan,on Monday.

While he is unlikely to explicitly say whether the BOJ may take further action to support the economy,comments from him expressing stronger worries about deflation may be interpreted by markets as signalling an increasing chance of future BOJ action.

Story continues below this ad

Finance Minister Hirohisa Fujii said that he would not intervene in currency markets and that now was the time to monitor the markets,Japan’s Mainichi Shimbun daily reported on Monday.

The rise in October production was smaller than the 2.5 per cent increase expected by economists and the 2.1 per cent increase in September.

But manufacturers surveyed by the Ministry of Economy,Trade and Industry expect output to rise 3.3 per cent in November and increase 1.0 per cent in December,data showed on Monday.

A rebound in the manufacturing sector has been driving Japan’s recovery since earlier this year. The economy grew 1.2 per cent in July-September after a revised 0.7 per cent expansion the preceding quarter.