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Japan’s Industrial Production Falls as BOJ Mulls Easing

Japan’s industrial production fell the most since last year’s earthquake and tsunami, bolstering the case for the Bank of Japan (8301) to add to monetary easing today to support an economy at risk of contraction.

Output declined 4.1 percent in September from the previous month, when it dropped 1.6 percent, the Trade Ministry said in Tokyo today. The median of 29 estimates in a Bloomberg News survey of analysts was for a 3.1 percent slide. None forecast such a large decline. A separate report showed unemployment unchanged.

Weakness in global demand and the expiration of car- purchase subsidies hit output, which is on a “downward trend,” the ministry said today. Most economists in a Bloomberg News survey expect the central bank to ease for the second time in two months, as a political standoff leaves the government at risk of running out of money and a territorial dispute with China further limits exports.

“Today’s data makes it certain that Japan’s economy contracted in the third quarter,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official. “It’s almost inevitable that the BOJ will ease monetary policy today.”

The Nikkei 225 Stock Average rose 0.3 percent as of 10:34 a.m. in Tokyo on prospects for easing. The yen was at 79.88 per dollar after declining more than 2 percent this month. Strength in the currency has eroded the sales and profits of the nation’s exporters, with the yen reaching a postwar high of 75.35 per dollar in October last year.

Honda Sales

Prime Minister Yoshihiko Noda is deadlocked with the largest opposition parties over legislation needed to fund the rest of the year’s budget, with Finance Minister Koriki Jojima yesterday reiterating that the government may run out of money at the end of November.

The month-on-month decline in production was the biggest since March last year, when parts of the northeast were devastated by the tsunami and earthquake. Output fell 8.1 percent from a year earlier. The unemployment rate held at 4.2 percent, matching analysts’ forecasts.

Honda Motor Co. (7267), Japan’s third-largest carmaker, yesterday cut its full-year profit forecast by 20 percent as Chinese consumers shunned Japanese brands amid a territorial dispute. In Japan, industrywide car sales fell in September for the first time in a year as the government stopped accepting applications for subsidies for fuel-efficient vehicles.

U.S. Markets

In the U.S., stock markets were prevented from opening by Sandy, the Atlantic Ocean’s biggest-ever tropical storm. Strong winds and rain roared ashore late yesterday and disrupted commerce, transportation, utilities and government services from Boston to Washington.

The S&P/Case-Shiller index scheduled for release today may show property values in 20 U.S. cities increased 1.9 percent in August from a year earlier, according to the median estimate of economists surveyed by Bloomberg News.

In Europe’s day ahead, reports may show Spain’s gross domestic product contracted in the third quarter at a faster pace from a year earlier, Germany’s unemployment rate rose to an 11-month high of 6.9 percent in October and euro-area consumer confidence hovered near the lowest level since 2009.

Morgan Stanley (MS) and Credit Suisse Group AG (CSGN) expect the Japanese economy to contract in the two quarters through the end of the year. Economy Minister Seiji Maehara said today he would attend the central bank’s meeting for the second time in a month, saying he plans to tell board members they should pursue powerful monetary easing to achieve a 1 percent inflation goal.

All but one of 27 economists surveyed by Bloomberg News expect the central bank to add to its 55-trillion-yen ($688 billion) asset-purchase program. Fifteen analysts expect the BOJ to add 10 trillion yen to its asset-purchase funds, while four economists see it adding as much as 20 trillion yen.

At the most recent meeting, on Oct. 5, the bank held off from easing.

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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