Japanese factory output fell in September for the first time since the devastating March earthquake, a sign the economy's recovery from the disaster is tailing off in the face of slowing global growth, the strong yen and Europe's lingering debt woes. The 4.0 percent September decline was bigger than expected and the impact of Thailand's floods on some industries may add to the output woes and push the world's third-biggest economy into a fresh soft patch, some analysts say.
Japan's economy had been emerging from a recession triggered by the March disaster as companies restored supply chains damaged in the quake. Manufacturers surveyed by the government expect output to rise in October and November. But some analysts say the yen's gains, a weak global economy and the Thai floods may mean the forecasts are too optimistic.
"Having rebounded following the March disaster, factory output is likely to stall until the year-end as overseas demand weakens," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance. September's fall in industrial output was nearly double a median market forecast for a 2.1 percent decline and followed a 0.6 percent rise in August, data by the Ministry of Economy, Trade and Industry showed on Friday.
It was the first post-quake decline and - excluding the 15.5 percent slump in March caused by the disaster - was the biggest fall since February 2009, when the financial crisis triggered by the collapse of Lehman Brothers hit global demand. A fall in general machinery output, such as chip production equipment, was a major contributor to the fall, reflecting not only weaker demand growth from overseas but the impact of the strong yen on Japan's export competitiveness, analysts said.
The ministry cut its assessment on industrial output to say it was flat as manufacturers it surveyed expect production to rise just 2.3 percent in October and 1.8 percent in November, barely enough to offset the steep decline in September. The BoJ on Thursday cut its economic forecasts because of slowing global growth, but still predicts a moderate economic recovery in the next two years, underpinned by reconstruction spending at home and the resilience of emerging economies.