Japan’s Factories Cut Capacity Use at Fastest Pace Since Quake

Japanese factories cut capacity use in August at the fastest pace since last year’s disasters, adding to evidence that the world’s third-largest economy is contracting.

The capacity utilization index, the ratio of production volume to capacity, slid 2.6 percent from the previous month to 85.8, the industry ministry said in a report released in Tokyo today. That was the steepest fall since the 22 percent decline in March 2011, when the earthquake and tsunami disrupted supply chains.

Today’s data highlight how sagging domestic demand, the yen’s strength and the global slowdown is hurting manufacturers, backing forecasts by Morgan Stanley and Credit Suisse Group AG for the economy to contract in the third and fourth quarters of this year.

“This is another sign that growth is slowing, and reconfirms the weakness of business activity and domestic demand,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “The corporate sector is hastily revising down investment plans.”

Nishioka said that RBS expects the economy to shrink 0.3 percent in the third-quarter, revised down from a previous forecast for a 0.3 percent expansion.

Japan’s industrial production fell 1.6 percent in August from July, compared with a preliminary estimate of a 1.3 percent drop, according to today’s report from the industry ministry.

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