28 February 2001, 12:48 BRIDGE FOCUS: Japan output data indicate econ entering.
By Reiko Mizutome and Shigeo Kodama, BridgeNews
Tokyo--Feb. 28--Industrial production data for January released
Wednesday have amplified concerns that Japan's economy is entering a
recession phase.
The January output data, which was much weaker than the average market
forecast,and the weak outlook for January-March production, shocked the markets.
* * *
"I see the economy as having peaked around August 2000, " Kazutaka
Kirishima, senior economist at Sumitomo Life Research Institute, said.
"The economy is expected to have peaked in July-September 2000, and it
is highly possible that the expected economic downturn in the fiscal year
2001-2002 (April-March) will be more serious than originally expected,"
Takehiro Sato, senior economist at Morgan Stanley Dean Witter, said.
The January output fell 3.9% on month, weaker than the average market
outlook of a 0.1% decline. Also, the January-March output is expected to
have fallen 1.7% on quarter, showing the first drop since April-June 1999,
if the outlook for the February and March output by the Ministry of
Economic, Trade and Industry (METI) is actually met.
METI's survey forecasts output to rise 2.7% on month in February but
fall 1.4% in March.
Peaks and bottoms of industrial output have often coincided with those
of the actual economy. For example, both industrial output and the economy
bottomed in April 1999.
The seasonally-adjusted industrial production index posted 108.4,
against 100.0 for a base year 1995, in August 2000, and since then the
index has failed to reach the August figure, indicating the economy as
well as industrial output peaked in August 2000.
Kazumasa Iwata, Director-General in charge of economic assessment at
the Cabinet Office, said, "The fall in the January output was larger than
expected, and that indicates the negative impact of the recent slowing of
exports directly hit output."
Exports on a volume basis fell 5.1% on year in January, showing the
first drop in the recent 20 months, the Ministry of Finance announced on
Feb. 21.
Akiyoshi Takumori, chief economist at Sakura Securities, said, "I have
been slightly more pessimistic (about economic conditions) than before
because factors which supported the economy so far have been undermined."
Besides exports, economic data released recently show capital
investment will slow in the near future, and personal consumption has not
taken off.
A survey conducted by the Economic and Social Research Institute at
the Cabinet Office found the adjusted key machinery orders will drop 6.4%
on quarter, showing the first drop since April-June 1999.
Given the fact that the key orders lead capital investment by 2-3
quarters, capital investment will likely be in a declining trend from
July-September or October-December.
Personal consumption, the largest component of the economy, has shown
little signs of recovery strong enough to compensate for expected falls in
both exports and capital investment.
Even worse, the recent falls in stock prices and the
quicker-than-expected slowing in the U.S. economy has dampened consumer
sentiment.
A survey conducted by the Nippon Research Institute (NRI) said the
Consumer Sentiment Index (CSI), which gauges concerns about living
conditions, rose to 131 in December, from 128 in August and 129 in
October.
A larger index reading indicates consumers have more concerns about
their living conditions.
Worsening in consumer sentiment is seen as preventing consumption from
improving because consumers will save, rather than spend, when there are
concerns about future economic conditions.
However, some economists hesitate to acknowledge that the economy has
entered a downward trend.
Mamoru Yamazaki, chief economist at Barclays Capital Japan, said
whether or not the economy will enter a recession phase largely depends on
the U.S.
economic conditions from now on, adding that if the U.S. economy recovers
quickly, after bottoming temporarily in the middle of 2000, the Japan
economy will not be in a recession.
Sakura's Takumori also said that even if manufacturers have to reduce
production in order to cut inventories, reflecting the possible economic
worsening, inventory adjustment may not be a serious one because inventory
levels have not been at high levels.
Adjusted inventory index stood at 96.1 in January, against 100.0 for a
base year 1995, METI said.
Moreover, Iwata at the Cabinet Office said he cannot judge output to
have peaked in August 2000 because its seasonally-adjusted indices will be
reviewed in the near future.
METI said it will announce reviewed figures of the past industrial
output indices in the middle April.
End
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