TOKYO, April 30 - Japanese industrial output fell unexpectedly in March from February, reflecting a serious slowdown in the growth of exports to the United States and Asia and stubborn weakness in domestic demand. Government data on Wednesday showed output fell 0.2 percent month-on-month in March, much worse than a median forecast of a 1.3 percent rise in a survey of 21 economists conducted last week. "It's a bleak number which could have a great impact on the outlook for the economy," said Seiji Adachi, an economist at Credit Suisse First Boston.
"As in the previous month, the downturn in exports to the United States is having an effect. Plus we're seeing a slowdown in the steel sector, which means that there might have been a cooling-off in exports to China, even before the impact from SARS." The March data showed that automobiles plus aluminium and steel used for construction led the fall in output. Output rose 3.7 percent in March from the same month a year earlier, a modest pace compared to the year-on-year rise of 4.8 percent in February and 8.0 percent in January. The Ministry of Economy, Trade and Industry forecast weaker conditions ahead, predicting the manufacturers' output index -- a key component and close proxy of industrial production -- would fall 0.9 percent in April before rising 2.1 percent in May. The ministry kept its assessment of industrial output unchanged for the fifth month, saying it remains on a weak trend.
Weakening U.S. consumer demand is beginning to hurt corporate Japan, which enjoyed a boost in profits in the year to end-March thanks to firm exports. SARS EFFECT
Japan had been counting on exports to China to cushion the impact of a slowdown in the U.S. but the fallout from Severe Acute Respiratory Syndrome (SARS) has cast doubt on that, with many economists forecasting the deadly virus would hurt growth in Asia, not least by cutting Chinese demand for industrial imports. A METI official said he had not yet heard of businesses cutting back on output as a result of SARS, but that it was "causing inconvenience" such as cancelled business trips. Japan's car makers have enjoyed particularly strong sales in Asia and the U.S. over the past year, but economists say such demand may have peaked. Data earlier this month showed domestic vehicle production fell 1.1 percent in March from a year earlier, with exports falling 0.1 percent. "I think the risk lies in auto makers. Sales in the U.S. market will likely decline this year. Japanese auto makers boosted their share in the U.S. market last year but it will be difficult to further raise their share this year," said Tatsuya Torikoshi, senior economist at Daiwa Institute of Research.
Some consumer electronics makers are also seeing a slowdown. Sony Corp <6758.T>, the world's largest consumer electronics maker, shocked investors this month with results far below its targets and a warning of shrinking profits in the year ahead. Sony's performance was dismal in the January-March quarter with a group net loss of 111 billion yen, its worst quarterly loss in more than eight years, as worries over the war in Iraq depressed consumer demand for its colour TVs, personal computers and other electronic goods. A recent fall in Tokyo stock prices to 20-year lows and a continuing slide in retail prices have also dented corporate sentiment and worried economic policymakers. The Bank of Japan's Policy Board began a meeting on Wednesday to discuss monetary policy and a plan to help smaller businesses find funding more easily. With interest rates already near zero, economists expect no real change in policy this time around.//