Japan's industrial output rises

Japan's industrial output rose in April from a month earlier, as expected, but sluggish growth in exports tempered the gains and mixed forecasts for the coming months suggested the economy remains in a weak patch. The 2.2 percent rise in output, led by production of cars and machines for making flat panel displays and semiconductors, was in line with an economists' median forecast of 2.3 percent. In March, output fell 0.2 percent.
Manufacturers' output - the core component of production - was expected to fall 2.3 percent in May, mainly in reaction to strong output of cars in April, and rise 1.4 percent in June, the Ministry of Economy, Trade and Industry said on Monday. "The weak forecast for May is worrying. It basically cancels out the April gains. With the forecast of a rebound in June, output would be up a marginal 0.2 percent or so for the quarter," said Takehiro Sato, an economist at Morgan Stanley.
He and other economists identified some bright signs such as a 1.2 percent fall in the inventories-to-shipments ratio as well as progress by firms in information technology-related sectors in cutting stockpiles. Inventories were flat in April from a month earlier, while shipments rose 2.7 percent.
Many have said a key factor for the economy this year is how soon manufacturers, particularly in the high-tech sector, can complete inventory adjustments and return to expansion.
"Shipments were quite strong and there are signs of an end to inventory adjustments in high-tech sector," said Yukari Sato, chief economist at Credit Suisse First Boston. But even the fall in the inventories-to-shipments ratio was not enough to dispel doubts about whether the strong economic growth seen in the first quarter would last. "The good news is that it seems inventory adjustments are progressing. The worrisome factor is that output growth is being hampered by a slower-than-expected rebound in exports," said Yoshimasa Maruyama, an economist at BNP Paribas.
Japan's economy expanded 1.3 percent in the January-March quarter from the previous three months, or 5.3 percent on an annualised basis, marking the strongest growth in a year. But the stronger-than-expected expansion was mainly due to gains in inventories and a rebound in personal consumption, which had fallen sharply late last year due to typhoons and earthquakes.