Create a free account to continue

Japanese Manufacturing Sees Signs Of Recovery

Japan's struggling manufacturers are showing signs of life -- an increase in industrial production in March, as well as a projected rise in factory output.

TOKYO (AP) -- Japan's struggling manufacturers are showing signs of life: The government said Thursday that industrial production rose for the first time in six months in March.

What's more, the outlook offered further reason for optimism. Factory output -- pivotal in this export-oriented economy -- is projected to rise 4.3 percent this month and another 6.1 percent in May.

Stocks surged after the data's release, with the benchmark Nikkei 225 index soaring nearly 4 percent.

After tumbling sharply in recent months, industrial production rose 1.6 percent in March from February, the Ministry of Economy, Trade and Industry said. It marked the first climb in half a year and beat Kyodo news agency's average market forecast for a 0.9 percent uptick.

"Japanese industrial production is turning the corner at a high speed," said Masayuki Kichikawa, chief economist at Bank of America Securities-Merrill Lynch in Tokyo. "These figures should serve as strong evidence that the economy is on a recovery track."

The central bank followed with its own relatively upbeat appraisal in the afternoon after the policy board left the key interest rate unchanged at 0.1 percent. While it projects Japan's gross domestic product to contract 3.1 percent this fiscal year through March 2010, it sees a turnaround emerging in the second half.

"Recently, signs of a leveling out of economic activity are beginning to be seen globally" in the wake of government stimulus plans around the world, the Bank of Japan said in its closely watched semiannual economic outlook report.

The assessment echoed similar sentiments Wednesday from the Federal Reserve, which said that while the economy is still receding, the pace of decline "appears to be somewhat slower" than the last time policymakers met in mid-March.

Any rebound in the U.S. would be critical for Japan, which had long relied on foreign sales of its cars and electronic gadgets to drive economic growth. Faced with an unprecedented collapse in global demand, the economy -- the world's second-biggest -- has been mired in its deepest recession since the end of World War II.

Major exporters such as Toyota Motor Corp. and Sony Corp. have moved quickly to adjust by reducing shifts, suspending factory lines and announcing thousands of job cuts over the past few months. Their strategy may now be paying off as they move to replenish slimming stockpiles.

The monthly industrial production gains represent a marked turnaround from February's 9.4 percent plunge and January's record 10.2 percent drop.

The climb was led mainly by electronic parts and general machinery, said the Ministry of Economy, Trade and Industry.

Inventories dropped 3.3 percent in March in the third consecutive monthly decline, while shipments grew 1.4 percent.

Other recent economic figures contain glimmers of hope. Exports in March managed to rise 2 percent from the previous month, the first increase in nearly a year.

The central bank is also treading carefully. Although positive signs have emerged, it remains uncertain "whether these developments will lead to a steady recovery of the world economy," it said, citing ongoing economic and financial risks as well as a new one: swine influenza.

The Bank of Japan announced Thursday that it has organized a "swine influenza response team" headed by Gov. Masaaki Shirakawa to "gather relevant information" and ensure that it is able to "continue providing essential central banking services under evolving conditions."

On Monday, Prime Minister Taro Aso's Cabinet submitted a massive supplementary budget to finance a new stimulus package. The proposal calls for a record 15 trillion yen ($155 billion) in government spending, equivalent to about 3 percent of Japan's gross domestic product.

The administration says the newest stimulus package will help protect the economy from slipping further while laying the foundation for future growth, including incentives for buying "eco-friendly" cars and home appliances. It also provides support for the unemployed and small businesses.

The new consumer subsidies should help spur production among automakers in particular, noted Chiwoong Lee, an economist at Goldman Sachs in Tokyo. He expects production to keep expanding until autumn but warned that it could "fall back between then and the fiscal year-end due to deterioration in the employment situation and weak consumption."

More in Operations