Japan’s Industrial Output Rose Less Than Expected in June

Japan’s Industrial Output Rose Less Than Expected in June
Nissan Motor Co. employees assemble a Leaf electric vehicle on the production line of the company's Oppama plant in Yokosuka City, Japan. Japan’s recovery is at risk from a slowdown in overseas demand and the yen’s appreciation, which can erode the value of profits earned by exporters such as Nissan Motor Co. Photographer: Kiyoshi Ota/Bloomberg

Japan’s industrial production rose less than expected as companies from Nissan Motor Co. to Toyota Motor Corp. warned that a yen close to a post World War II high threatens to drag down exports.

Factory output increased 3.9 percent in June from May, when it rose 6.2 percent, the biggest gain since 1953, the Trade Ministry said in Tokyo today. The median estimate of 31 economists surveyed by Bloomberg News was for a 4.5 percent gain.

A plunge in Nintendo Co.’s share price today highlighted challenges for Japanese companies including weakness in overseas demand and the yen’s strength against currencies including the dollar. Sony Corp. and Nintendo yesterday unexpectedly slashed their profit forecasts after their televisions and handheld games players failed to keep pace with products from rivals in South Korea and the U.S.

“The stronger yen is making Japanese products less competitive and that’s very tough for exporters,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “Japan’s rapidly losing its competitive edge because of the currency.”

Japanese Finance Minister Yoshihiko Noda said today he will take “appropriate actions” against the rising yen as “markets are diverging recently from the strength of actual economy.”

Companies said they plan to boost output 2.2 percent this month and 2 percent in August, an indication they are confident about demand. Shipments soared 8.5 percent in June, the biggest gain since records began in 1953. The forecasts suggest companies aren’t making drastic output cuts because of mandatory power-saving measures implemented on July 1 due to a nationwide energy shortage in wake of the nuclear accident in Fukushima.

Positive Forecasts

The plans show “we’re not seeing much of an impact from the power-saving drive and that’s very positive,” said Takuji Aida, a senior economist at UBS AG in Tokyo. “This is good for the medium-term outlook.”

The yen traded at 77.62 per dollar at 11:49 a.m. in Tokyo from 77.82 before the report was published, while the postwar high is 76.25. Concern that U.S. lawmakers will fail to reach an agreement on raising that nation’s debt ceiling has boosted Japan’s currency this week.

Nintendo fell by more than 20 percent in Osaka trading after it lowered its profit forecast by 82 percent and announced that lack of demand for its new 3-D handheld player prompted it to cut prices of the five-month-old product by as much as 40 percent. Sony, Japan’s largest exporter of electronics, yesterday cut its profit estimate 25 percent, citing lower TV demand in Europe.

Earnings Shrink

Earnings of the 328 companies in Japan’s Topix index to report net income since July 11 have shrunk about 14 percent from a year earlier, data compiled by Bloomberg show. In 48 cases, profit was higher than analysts forecast, while 39 companies missed estimates.

In South Korea, whose currency has strengthened most against the dollar among major Asian economies this year, industrial output also decelerated. Production grew at the slowest pace in nine months, rising 6.4 percent in June from a year earlier, a government report showed today. Separate reports in Japan today showed the unemployment rate rose to 4.6 percent and consumer prices excluding fresh food rose 0.4 percent.

Finance Minister Noda said in parliament today that intervening in the currency market “has some positive effects temporarily,” and officials will take action against disorderly moves rather than currency levels. Japan last sold yen in March after the currency surged in reaction to the quake and tsunami.

‘Limits’ of Efforts

Nissan Motor is reaching the limits of its efforts to respond to the stronger yen and is worried about its impact on jobs, Corporate Vice President Joji Tagawa said on July 27. The Japanese currency’s strengthening past 80 yen to the dollar is slowing the nation’s economic recovery, Toyota Motor President Akio Toyoda said on July 19.

The U.S. economy probably expanded at a 1.8 percent annual pace in the second quarter, the slowest pace in a year, economists said before a report due later today. In China, Japan’s biggest export market, the preliminary purchasing managers’ index compiled by HSBC Holdings Plc and Markit Economics dropped to 48.9 in July, signaling manufacturing may slow. A reading below 50 reflects a contraction.

Japanese companies including Canon Inc., the world’s largest camera maker, still say a recovery is underway. The company this week raised its profit forecast on higher sales and a lower-than-expected impact from the quake.

“Production at most of our factories returned to pre-earthquake level at the end of June,” Toshizo Tanaka, Canon executive vice president, said on July 25. The company foresees little impact from power-supply shortages this fiscal year as Canon has taken measures at its plants and offices such as adding generators, he said.

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