/www.bloomberg.com/ By Daisuke Takato
Tokyo, Nov. 29 (Bloomberg) -- Japan's industrial production unexpectedly fell in October and the unemployment rate rose for the first time in six months, suggesting a recovery from the third recession in a decade may be ending.
Production fell 0.3 percent from September and will probably drop 0.1 percent this month, seasonally adjusted, the Ministry of Economy, Trade and Industry said. The jobless rate in the world's second-largest economy rose to 5.5 percent, matching December's record, from 5.4 percent in September.
Companies such as Advantest Corp. and Furukawa Electric Co. are cutting production and firing workers after exports fell in four of the past five months. Prime Minister Junichiro Koizumi's push to have banks write off 52.4 trillion yen ($428 billion) of bad loans may also hurt the economy as lenders cut off delinquent borrowers, pushing them into bankruptcy, economists said.
``Today's production number was much weaker than expected,'' said Akio Yoshino, a general manager of investment research at SG Yamaichi Asset Management Co., which manages 1 trillion yen. ``Japan's economy is on the verge of going into another recession.''
Japan's Nikkei 225 Stock Average rose 1 percent to 9267.84 at 1:44 p.m. Japan time after falling as much as 0.6 percent. Shares of machinery makers such as Fanuc Ltd. fell.
Production of chipmaking equipment, printing machines, chemicals and transport products such as ships and cars fell, contributing to a second month of production decreases in October, today's report showed.
Exports Slow
Furukawa Electric, the world's No. 2 maker of fiber-optic cable, widened its full-year loss forecast this month to 128.2 billion yen from 115 billion yen and said it will cut about 500 workers in Japan. Earlier, it said it would halve its output of fiber optic cable.
Advantest Corp., the world's biggest maker of memory-chip testing equipment, last month said it had a fiscal first-half loss and widened its full-year loss forecast. The company will cut 600 jobs to cope with the slowdown in hopes of saving 10 billion yen annually in labor costs.
Japan's economy is already slowing. Growth slowed in the third quarter to 0.7 percent from 1 percent in the second quarter. Exports, which account for a tenth of the economy, slowed to growth of 0.5 percent in the third quarter from 5.9 percent in the second.
The Bank of Japan cut its assessment of the economy earlier this month for the first time in 11 months, saying exports and production are stalling as global growth falters.
Financial Services Minister Heizo Takenaka today said the pace of economic recovery is slowing and Japan's economic condition remains ``severe.''
Takenaka today is expected to unveil details of a plan to speed the write-off of bad loans at Mizuho Holdings Ltd. and other lenders. Bad loans have paralyzed the banking system, contributing to a six-year slide in lending and four years of falling prices that have hurt corporate profits.
`Grim Outlook'
The bad-loan drive will probably hurt the economy before bringing it back to health, economists said, as companies are forced into bankruptcy and the ranks of the unemployed swell.
``The outlook for the job market is pretty grim,'' said Takeshi Minami, a senior economist at UFJ Capital Market Securities. ``The unemployment rate may rise as high as 6 percent sometime next year.''
Prices are likely to extend their slide as consumers cut back on spending. Tokyo's core prices, which exclude fresh food, were unchanged in November from October, another government report showed today. From a year ago, prices fell 0.7 percent.
``The domestic economy is still struggling to get out of deflation,'' said Azusa Kato, an economist at BNP Paribas Securities. ``Deflation is eroding sales, which means companies can't invest or hire more people.''
Nationwide core prices in October fell 0.9 percent from a year ago. The central bank has pledged to keep interest rates at near zero until those prices rise.