By Reiko Mizutome and Shigeo Kodama, BridgeNews Tokyo--Feb. 28--Industrial production data for January released Wednesday have amplified concerns that Japan's economy is entering a recession phase.
The January output data, which was much weaker than the average market forecast,and the weak outlook for January-March production, shocked the markets.
* * * "I see the economy as having peaked around August 2000, " Kazutaka Kirishima, senior economist at Sumitomo Life Research Institute, said.
"The economy is expected to have peaked in July-September 2000, and it is highly possible that the expected economic downturn in the fiscal year 2001-2002 (April-March) will be more serious than originally expected," Takehiro Sato, senior economist at Morgan Stanley Dean Witter, said.
The January output fell 3.9% on month, weaker than the average market outlook of a 0.1% decline. Also, the January-March output is expected to have fallen 1.7% on quarter, showing the first drop since April-June 1999, if the outlook for the February and March output by the Ministry of Economic, Trade and Industry (METI) is actually met. METI's survey forecasts output to rise 2.7% on month in February but fall 1.4% in March.
Peaks and bottoms of industrial output have often coincided with those of the actual economy. For example, both industrial output and the economy bottomed in April 1999.
The seasonally-adjusted industrial production index posted 108.4, against 100.0 for a base year 1995, in August 2000, and since then the index has failed to reach the August figure, indicating the economy as well as industrial output peaked in August 2000.
Kazumasa Iwata, Director-General in charge of economic assessment at the Cabinet Office, said, "The fall in the January output was larger than expected, and that indicates the negative impact of the recent slowing of exports directly hit output."
Exports on a volume basis fell 5.1% on year in January, showing the first drop in the recent 20 months, the Ministry of Finance announced on Feb. 21. Akiyoshi Takumori, chief economist at Sakura Securities, said, "I have been slightly more pessimistic (about economic conditions) than before because factors which supported the economy so far have been undermined." Besides exports, economic data released recently show capital investment will slow in the near future, and personal consumption has not taken off.
A survey conducted by the Economic and Social Research Institute at the Cabinet Office found the adjusted key machinery orders will drop 6.4% on quarter, showing the first drop since April-June 1999. Given the fact that the key orders lead capital investment by 2-3 quarters, capital investment will likely be in a declining trend from July-September or October-December.
Personal consumption, the largest component of the economy, has shown little signs of recovery strong enough to compensate for expected falls in both exports and capital investment.
Even worse, the recent falls in stock prices and the quicker-than-expected slowing in the U.S. economy has dampened consumer sentiment. A survey conducted by the Nippon Research Institute (NRI) said the Consumer Sentiment Index (CSI), which gauges concerns about living conditions, rose to 131 in December, from 128 in August and 129 in October. A larger index reading indicates consumers have more concerns about their living conditions.
Worsening in consumer sentiment is seen as preventing consumption from improving because consumers will save, rather than spend, when there are concerns about future economic conditions.
However, some economists hesitate to acknowledge that the economy has entered a downward trend.
Mamoru Yamazaki, chief economist at Barclays Capital Japan, said whether or not the economy will enter a recession phase largely depends on the U.S.
economic conditions from now on, adding that if the U.S. economy recovers quickly, after bottoming temporarily in the middle of 2000, the Japan economy will not be in a recession.
Sakura's Takumori also said that even if manufacturers have to reduce production in order to cut inventories, reflecting the possible economic worsening, inventory adjustment may not be a serious one because inventory levels have not been at high levels.
Adjusted inventory index stood at 96.1 in January, against 100.0 for a base year 1995, METI said.
Moreover, Iwata at the Cabinet Office said he cannot judge output to have peaked in August 2000 because its seasonally-adjusted indices will be reviewed in the near future. METI said it will announce reviewed figures of the past industrial output indices in the middle April. End Copyright 2001 Bridge Information Systems Inc. All rights reserved.