Japan’s Industrial Output Unexpectedly Falls on Global Weakness

Japan’s industrial production unexpectedly fell in July, adding to signs that faltering global demand is undermining the economy’s recovery.

Production slid 1.2 percent in July from June, when it advanced 0.4 percent, the Trade Ministry said in Tokyo today. The median estimate of 27 economists surveyed by Bloomberg News was for a 1.7 percent increase.

A slowdown in exports and the winding down of subsidies for car purchases are dimming the outlook for manufacturing and growth in the world’s third-biggest economy. Bank of Japan (8301) Governor Masaaki Shirakawa said on Aug. 24 that demand related to reconstruction from last year’s earthquake and tsunami is “gradually gaining momentum” and may help to sustain growth.

“Looking ahead, Japan’s economy will probably lose steam,” Kohei Okazaki, an economist at Nomura Securities Co. in Tokyo, said before the report. “Overseas demand is slowing, affecting production and capital spending.”

Japan’s government this week downgraded its economic assessment for the first time in 10 months, citing weakness in global demand. Exports fell the most in six months in July, a finance ministry report showed last week. Separately, retail sales dropped more than economists’ forecast in July, a report showed yesterday.

A minority of analysts are forecasting the economy may contract this quarter.

JPMorgan Securities Japan Co. forecasts a 0.3 percent annualized decline in gross domestic product in the three months through September, while BNP Paribas SA estimates a 0.9 percent fall. The median estimate in a Bloomberg News survey compiled this month was for 1 percent growth, partly supported by earthquake reconstruction work.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

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

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