July 31 (Bloomberg) -- Japanese manufacturers plan to boost production at least through August, easing concern a recovery that began with inventory restocking may fizzle. Companies said they aim to boost output 1.6 percent this month and 3.3 percent in August, a Trade Ministry report showed yesterday. The gain, led by makers of cars and steel, would follow an 8.3 percent increase in the three months ended June 30, the biggest quarterly advance in more than half a century. The production rebound has been driven by companies including Nippon Steel Corp., which is raising output to rebuild inventories depleted during the worst of the recession at the start of the year. The report suggests manufacturers may keep restocking as $2.2 trillion in government stimulus plans worldwide generate demand among consumers and businesses. “It’s going to keep running for a few months to come,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. “By then, you’re going to get to some improvement in end demand.” The Nikkei 225 Stock Average climbed 0.5 percent yesterday in Tokyo, taking gains to 44 percent since reaching a 26-year low on March 10. The yield on the 10-year government bond rose two basis points to 1.385 percent. Car Incentives Government incentives to buy cars in markets from the U.S. to China have already begun to benefit Japanese automakers. Honda Motor Co. and Nissan Motor Co. shares soared yesterday after they reported earnings that beat analysts’ estimates. If the production plans materialize, that would mark six months of gains, the longest winning streak in 12 years. Output rose 2.4 percent in June from the previous month, capping the biggest quarterly jump since 1953. Manufacturers boosted production of capital goods by 7.9 percent, the first increase since the recession deepened in September. That signals companies may be willing to spend on factories and equipment again, according to Akiyoshi Takumori. “It’s a sign that capital spending has finally bottomed,” said Takumori, chief economist at Sumitomo Mitsui Asset Management Co. “The data shows there isn’t much risk the economy will slip into a double-dip recession.” Japan’s production rebound adds to signs around the world that the global recession is abating. The U.S. Federal Reserve said this week 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, Nissan Honda climbed 8.7 percent yesterday, the most in three months, after raising its net income estimate and unexpectedly reporting quarterly profit of 7.5 billion yen ($79 million). Nissan surged 10 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. 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. BOJ’s Noda “Japan’s growth definitely improved sharply in the second quarter,” Bank of Japan board member Tadao Noda said in a speech yesterday in Matsumoto, central Japan. “Exports, production and public investment posted large increases.” Even with the month-on-month gains in production, companies are making 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 still remains idle, reducing profit margins. “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. Nippon Steel, Japan’s largest mill, will restart one of its two idled domestic furnaces next month to meet orders from carmakers that ran down stockpiles. President Shoji Muneoka said last week demand may not recover enough this year 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.” To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Tatsuo Ito in Tokyo at tito@bloomberg.net.

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