29 January 2003, 09:31  Japan's Industrial Production Fell 0.1% in December (Update5)

Tokyo, Jan. 29 (Bloomberg) -- Japan's industrial production unexpectedly fell in December for a fourth month because manufacturers shifted production overseas and global demand slowed. Production fell 0.1 percent from November, seasonally adjusted, the Ministry of Economy, Trade and Industry said. The median forecast of 31 economists in a Bloomberg News survey was for a 0.1 percent gain. For all of 2002, output fell 1.4 percent to a 15-year low. The slump may be extend into this year as companies such as Toyota Motor Corp. move production abroad to tap cheaper labor and cut shipping costs. That will make it harder for Prime Minister Junichiro Koizumi's government to steer Japan clear of a fourth recession in about a decade. ``Eventually, this hollowing-out of domestic factories will haunt Japan's growth,'' said Junichi Makino, senior economist at Daiwa Institute of Research Ltd. The government today predicted output in January would rise 2.1 percent, more than its prediction of 1.2 percent made a month earlier. February's output, though, will sag 1.1 percent. The Nikkei 225 Stock Average was down 2 percent to 8356 at 1:28 p.m. in Tokyo. Exporters such as Fanuc Ltd. led the drop.
The No. 245 bond, which carries a 0.9 percent coupon and matures in 2012, rose 0.092 to 101.146 at 1:23 p.m. in Tokyo. Its yield fell one basis point to 0.775 percent, matching the record set in October 1998. A basis point is 0.01 percentage point. The yen fell 0.5 percent against the dollar to 118.15 as of 1:23 p.m. in Tokyo, from 118.77 in late New York trading.
China-bound
Japanese companies from makers of cars to computer chips are increasingly moving factories to China and elsewhere to cut costs. That's driving up unemployment at home, which rose to match a record 5.5 percent last October, and cut consumer demand in the world's second-largest economy. Some of those new factories' output is making it back to Japan, with China last year overtaking the U.S. as the country's biggest source of imports. Toyota, Japan's largest carmaker, plans to cut domestic production by 3 percent this year and reduce exports by 5.9 percent as it builds more cars in the U.S. and the rest of Asia. Steel maker JFE Holdings Inc., formed in September from the merger of NKK Corp. and Kawasaki Steel Corp., said yesterday it will close 12 production lines by next year, almost twice as much as earlier planned, and cut 4,2000 jobs, or 14 percent of its workforce. The company said it may move some production to China. Toshiba, Japan's No. 1 chipmaker, said this week it plans to double investment in China to $2 billion in five years to expand microprocessor, liquid-crystal display and mobile phone businesses.
Exports Falter
Faltering exports are also hurting production. Overseas shipments fell in December for the first month in three, causing a larger-than-expected slump in the trade surplus, a report this week showed. Exports fell 7.3 percent, seasonally adjusted, from November. Declining exports and production may sap a recovery from Japan's third recession in a decade. Japan's economy probably shrank 0.3 percent in the fourth quarter, according to the median of 12 economists' forecasts in a Bloomberg News survey, after expanding 0.8 percent in the third quarter. ``With exports stalling, production is also slowing down,'' said Eishi Yokoyama, a strategist at AIG Global Investment Corp. ``The slowdown in production will put the economy in worse shape.'' Companies such as Denso Corp., Japan's largest auto-parts maker, are counting on a recovery in demand in the U.S., Japan's largest overseas market. ``We cannot depend on Japan for a self-recovery,'' said Masatoshi Ano, Chief Financial Officer at Denso Corp., Japan's largest auto-parts maker, which is 24 percent owned by Toyota.
Bad Loans
Companies relying on local demand have been hurt by near- record unemployment, 19 months of shrinking wages and more than four years of falling prices, which have cut into earnings and inflated debt. Koizumi's plans to force banks to write off 52.4 trillion yen ($443 billion) of bad loans may make the economy worse, analysts say, as banks cut off deadbeat borrowers, pushing them into insolvency. Production of transport equipment and general machinery led the drop in December. Transport equipment, which include vehicles and its parts, fell 1.4 percent from November, the fourth straight drop. General machinery, which includes chip-making machines, fell 2 percent in December, contributing to a 9.3 percent drop for the year. From a year earlier, production rose 6.7 percent in December, compared with economists' expectations of a 6.1 percent gain. Production fell 0.9 percent in the fourth quarter from the third, the ministry said. //www.quote.bloomberg.com

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