Japanese manufacturers increase output to 2.4%
Japanese manufacturers increased production for a fourth month in June, capping the fastest quarterly output expansion in more than half a century and helping the economy rebound from its deepest postwar recession.
Production rose 2.4 percent from May, the Trade Ministry said today in Tokyo. Output gained 8.3 percent last quarter from the first three months of 2009, the most since 1953.
Companies said they also planned to increase manufacturing in July and August to replenish inventories and meet demand spurred by more than $2 trillion in government spending worldwide. Honda Motor Co. and Nissan Motor Co. shares soared after incentives from the U.S. to China to buy fuel-efficient cars helped the automakers report earnings that beat estimates.
“You’re seeing a dramatic inventory-driven production spike,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. “It’s a good, solid set of data; it suggests the inventory cycle is very powerful and it’s going to keep running for a few months to come.”
The yen traded at 94.97 per dollar at 11:36 a.m. in Tokyo from 95.08 before the report was published. The Nikkei 225 Stock Average rose 0.03 percent at the lunch break, and has gained 43 percent since reaching a 26-year low on March 10.
Today’s report adds to signs the deepest global recession since the Great Depression is abating. The U.S. Federal Reserve said yesterday that most of its 12 regional banks detected a slower pace of economic decline in June and July. China, South Korea and Vietnam all reported faster growth last quarter.
Honda climbed as much as 9 percent, the most in three months, after raising its net income estimate and unexpectedly reporting quarterly profit of 7.5 billion yen ($79 million). Nissan gained as much as 8.7 percent to a nine-month high after reporting a smaller loss than analysts predicted.
The U.S., Germany and China are offering consumers credits, tax breaks and subsidies for trading in old cars for new fuel- efficient models. Japan’s own stimulus has boosted sales of environment-friendly cars like Toyota Motor Corp.’s Prius.
Manufacturers planned to boost output 1.6 percent in July and 3.3 percent in August, today’s report showed. The ministry said production is “on a recovery trend” after last month describing it as “showing signs of recovery.”
“The forecasts fuel hope that the rebound will last a bit longer than we’d thought,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo.
Japanese exports rose in June from May, buoyed by sales to China and the U.S., the country’s biggest overseas markets. The increase probably helped the world’s second-largest economy return to growth last quarter after four periods of contraction that shrunk gross domestic product down to its 2003 size.
Analysts surveyed by Bloomberg News forecast Japan’s economy expanded at an annualized 2.4 percent in the three months ended June 30. GDP shrank at a record annual 14.2 percent pace in the first quarter.
“Japan’s growth definitely improved sharply in the second quarter,” Bank of Japan board member Tadao Noda said in a speech today in Matsumoto, central Japan. “Exports, production and public investment posted large increases” in the three months ended June 30, he said.
Even with the month-on-month gains in production, companies are churning out 23.4 percent fewer goods than last year, putting pressure on them to forgo investment and cut workers. About 40 percent of the nation’s factory capacity remains idle, increasing costs of each unit sold.
Not Filtering Down
“The pickup in manufacturing isn’t filtering down to households and non-manufacturers because manufacturers are still cutting costs, especially personnel costs,” said Kyohei Morita, chief economist at Barclays Capital in Tokyo. Economists expect a report tomorrow will show the jobless rate climbed to a six-year high of 5.3 percent in June.
Canon Inc., Japan’s biggest maker of office equipment, this week forecast sales will drop 22 percent this year as companies limit spending on copiers and other business tools. To cope with that, the company said it plans to pare its own expenses by 220 billion yen ($2.3 billion).
Economists say Japan’s recovery will only be sustainable if private demand takes over from where government spending leaves off.
Nippon Steel Corp., Japan’s largest mill, will next month restart one of its two idled domestic furnaces to meet carmaker orders. President Shoji Muneoka said last week demand may not recover this year enough to warrant restarting the other one.
“The recovery is only as robust as the stimulus packages,” said Barclays’ Morita. “By the end of the year, production will recover to a level about 15 or 20 percent below its peak. That implies companies are not going to see profit growth, which means there’s more cost-cutting ahead.”