HONG KONG — Industrial output data from Japan on Friday intensified worries that the world’s second-largest economy is headed for a deeper and more protracted recession than previously thought as consumer and corporate demand around the world evaporates.
At the same time, fresh inflation data indicated that Japan faces a period of deflation next year, while falling employment and consumer spending added to the bleak picture and highlighted how difficult it will be for Japan to extricate itself from the recession.
“It’s a big mess,” said Ryutaro Kono, chief economist for Japan at BNP Paribas, referring to the industrial output. “We’ve never seen anything like it.”
Industry output in November plunged 8.1 percent from a month earlier, the biggest decline on record. The fall surprised even the most pessimistic of forecasters, despite a flurry of announcements in recent weeks showing manufacturers like Honda and Sony racing to scale back production as domestic and overseas demand plummets.
In the latest of a string of such news from corporate Japan, Fuji Heavy Industries, the maker of Subaru-brand cars, said Friday that it would reduce output by a further 10,000 vehicles in the business year ending in March, bringing the total to 70,000. It will also shed 300 additional temporary jobs, Bloomberg News reported.
“The output results were very disappointing,” said Satoru Ogasawara, an economist at Credit Suisse in Tokyo. “They are much worse than expected.”
Japan’s export-dependent economy has been hit especially hard by the downturn in the United States and Europe as those economies are key markets for corporate giants like Panasonic, Nissan and Toyota.
“It was U.S. excess consumption that was behind Japan’s growth in the past few years,” said Mr. Kono of BNP Paribas.
With the U.S. and the euro zone now in recession, and the strong yen making Japanese goods more expensive there, Japan’s exporters have been forced to issue a string of profit warnings and production and staff cutbacks.
The data on Friday showed manufacturers planned to scale back output a further 8 percent this month, putting the manufacturing sector in line for a quarterly drop of 11.1 percent. This, combined with figures out Monday showing exports in November dropped a massive 26.7 percent from a year earlier, shows the overall Japanese economy is heading for a contraction of more than 5 percent this quarter, said Mr. Kono, the BNP Paribas economist.
Many economists believe the first two quarters of next year also look set to contract, before the economy bottoms out during the second half of 2009.
For next year overall, Mr. Ogasawara of Credit Suisse forecast that Japan’s economy will shrink by 2.1 percent.
Adding to the bleak picture, other data on Friday showed Japanese manufacturers’ inventories continued to swell despite the production cutbacks, as shipments declined more rapidly than the companies’ ability to rein in output. This means companies will be lumbered with huge inventory build-ups, which will hamper their ability to rebound once the economy does start to bottom out.
Data also showed the jobless rate climbed to 3.9 percent in November from 3.7 percent the previous month. Household spending slid a modest 0.5 percent, but is widely expected to deteriorate sharply as the recession deepens.
Meanwhile, annual core consumer inflation slowed to 1 percent in November from 1.9 percent the previous month, thanks largely a plunge in oil prices, and early December data for the key Tokyo region foreshadowed an overall December reading of only 0.2 percent.
This puts the country in line for a slight fall in prices - that is, deflation - by the second quarter of 2009, according to Mr. Kono, the BNP Paribas economist.
With interest rates in Japan already near zero, the Bank of Japan has no room to cut the cost of borrowing further, and will now have to try to shore up ailing Japanese credit markets by buying commercial paper.
Meanwhile, the government, whose already-announced stimulus packages have yet to be implemented, may face pressure for yet more measures to bolster the economy. Kaoru Yosano, the economics minister, said Friday that the government would act flexibly on possible additional measures if conditions deteriorated further.
