TOKYO (AP) — Japan's industrial output fell more than expected in January on weaker overseas demand for electronic devices and cars, the government said Thursday, adding to fears the nation's economy may be facing a recession.
Other data showed that retail sales increased 1.5 percent in January from a year ago. But with the bulk of gains being a result of high oil prices, analysts say that domestic consumption is unlikely to contribute much to the economy in the near term.
That same report showed that sales at large-scale manufacturers fell 1.9 percent after adjusting for the change in the number of stores, the second monthly decline.
Industrial production — a widely watched indicator in this export-driven economy — fell 2 percent in January from December, the Ministry of Economy, Trade and Industry said. That was worse than the 0.6 percent drop projected by economists.
''The release confirms that production is trending down from an October peak. The production cycle is a key factor in assessment of the business cycle and it implies that Japan is in recession,'' Goldman Sachs economist Naoki Murakami said in a report.
Manufacturers are expecting the decline in production to continue, predicting a 2.9 percent decrease in February before a 2.8 percent rise in March. That signals ''a clear downturn,'' Murakami said.
The bulk of January's decline was attributed to lower production of electronic parts and devices exported to Asia and Europe, which fell 3.5 percent on month, as well as a drop in car production for the Middle East and the United States. Sluggish output of general machinery added to the fall.
The data come amid increasing worries that a global economic downturn on the back of U.S. subprime woes may result in a slump in Japanese exports, a main pillar of the nation's economic recovery.
Along with the decline in output, a 1.3 percent drop in inventories reflects businesses' careful view on the outlook for overseas demand, analysts said.
Meanwhile, economists are pessimistic about the outlook for Japan's private spending as consumer sentiment has been at multiyear lows in recent months due to sluggish wage growth and rising energy and food prices.
With wages unlikely to rise much in the months ahead, economists are worried that consumer spending, and eventually domestic demand, may weaken.
''Even if prices go up, some daily essentials are indispensable and as their prices rise, consumer sentiment cools down even further,'' said Hidehiko Fujii, chief economist at Japan Research Institute.
The reports helped depress Japan's stock market Thursday, when the benchmark Nikkei 225 stock index dropped 0.75 percent to 13,925.51 points.