Japan’s Industrial Output Falls Most Since 2011 Quake

Japan’s industrial output fell the most since the March 2011 earthquake and consumer prices declined, bolstering the case for extra stimulus to sustain the nation’s economic recovery.

Production declined 3.1 percent in May from April, the Trade Ministry said in Tokyo today. A holiday may have played a role and Mitsubishi UFJ Morgan Stanley cited post-quake difficulties in seasonal adjustments. Consumer prices excluding fresh food fell 0.1 percent in May from a year earlier.

Weakness in European demand limited automobile output, underscoring the risk to Asia from the region’s crisis as euro- area leaders grapple with limiting the spread of sovereign-debt woes. Production of transportation equipment -- including automobiles -- slumped 11.1 percent in May, the biggest drag on output overall.

“Today’s report confirmed that production has entered a soft patch,” said Satoshi Osanai, an economist at Daiwa Institute of Research in Tokyo. “A slowdown in global demand, especially in Europe and Asia, may weigh on production.”

The decline in output compared with the median estimate in a Bloomberg News survey for a 2.8 percent drop. The government cited weakness in European demand for automobiles. The slide in production was 0.2 percent the previous month.

The jobless rate declined to 4.4 percent in May, according to a separate report. Bank of Japan (8301) officials next meet on July 11 and 12 to review the need for more stimulus.

Asian Stocks Rise

The MSCI Asia Pacific Index rose 1 percent at 12:06 p.m. in Tokyo after euro-area leaders agreed to drop the condition that their governments get preferred creditor status for emergency loans to Spanish banks.

Elsewhere in Asia, Chinese central bank governor Zhou Xiaochuan said that China will fine-tune its economic policies in a “timely and appropriate” manner, as the statistics bureau reported that industrial profits fell for a second month in May.

Vietnam reported that its economy expanded 4.66 percent in the three months ending June from a year earlier, signaling growth may fall short of a target this year.

South Korea indicated yesterday that it’s preserving fiscal firepower for worsening economic conditions after a cut to the nation’s growth forecast. The government’s 8.5 trillion won ($7.4 billion) of economic support measures announced yesterday, including assistance for small businesses and low-income earners, leaves room for a bigger response if conditions deteriorate, said Choi Sang Mok, a director-general at the finance ministry.

The nation today reported higher-than-forecast industrial output for May.

Threat to Exports

In Japan, the government’s 20 trillion yen ($252 billion) in spending to rebuild areas devastated by the disaster has supported three straight quarters of economic growth. The risk now is that Europe’s debt crisis and strength in the yen cut exports and damp the recovery just as the boost from public spending fades.

Manufacturers plan to increase production by 2.7 percent this month and 2.4 percent in July, a government survey of companies released by the trade ministry showed.

While government subsidies for purchases of fuel-efficient cars have bolstered spending and production, those gains may fade. The program may expire by August, according to Daiwa.

The earthquake and tsunami last year choked production at manufacturers such as Renesas Electronics Corp. (6723) and Toyota Motor Corp. (7203), causing the world’s third-largest economy to contract 0.8 percent.

Growth Forecasts

The annualized expansion of 4.7 percent in the January- March period will slow to 2 percent in the second quarter and 1.6 percent in the third quarter of this year, according to the median forecast of economists surveyed by Bloomberg News.

Concerns that overseas demand will slump further is exacerbated by a yen that has risen 5.4 percent since mid-March, eroding sales and profits for exporters such as Honda Motor Co. (7267) The currency traded at 79.32 per dollar as of 9:46 a.m. in Tokyo.

In the U.S. today, economists surveyed by Bloomberg predict the Thomson Reuters/University of Michigan final index of consumer sentiment, will drop to 74.1 for June, the lowest level of the year and matching the preliminary reading.

In Europe, economic releases span gross domestic product in France, retail sales in Germany and euro region inflation.

To contact the reporter on this story: Andy Sharp in Tokyo at asharp5@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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