Japan industrial production up 1.9 percent in July

[August 31, 2009]  TOKYO (AP) -- Japan's factory output rose for the fifth straight month in July and is expected to keep climbing -- one of the few encouraging signs for a newly elected government charged with bolstering the world's second largest economy.

Industrial production climbed 1.9 percent from the previous month and "continues to show an upward movement," the Ministry of Economy, Trade and Industry said Monday, a day after the opposition Democrats swept to power in a landslide victory in parliamentary elections, unseating the long-governing Liberal Democratic Party.

The results beat a 1.6 percent rise forecast in Kyodo news agency's survey of economists. Strong gains among companies making transport equipment and steel products fueled the increase.

Japan's economy emerged from a yearlong recession in the second quarter, lifted by a rebound in exports as governments around the world infused their economies with stimulus money. Manufacturers expect factory output to rise 2.4 percent in August and 3.2 percent in September.

The Democratic Party "takes power at a time when Japan's economy is into its cyclical recovery and global recovery prospects are improving," said Takuji Aida, senior economist at UBS Securities Japan. "The economic momentum should provide some cushion for (the party) going forward."

Though the latest result is encouraging, Japan's overall economy remains weak, with unemployment rising to a record 5.7 percent. Industrial production is still more than 22 percent lower than it was a year ago, just before the eruption of the global financial crisis.

Consumers are spending less money amid economic anxieties. A separate report showed that retail sales fell 2.5 percent in July from a year earlier, the 11th straight monthly decline.

Chiwoong Lee, an economist with Goldman Sachs in Tokyo, says the outlook for factory output is "bright" on expected export growth but warned of frail domestic demand.

"Consumption...remains a downside risk for production due to deterioration in employment conditions," he said in a note to clients.

Sustaining economic growth will be among the highest priorities for the Democratic Party of Japan, which have promised to expand the social safety net and shift Japan from its longtime reliance on exports by boosting domestic demand.

Stocks initially rose after the Democrats' win but succumbed to the pressures of a stronger yen, which reduces the value of overseas profits for exporters. The benchmark Nikkei 225 stock average closed down 0.4 percent at 10,492.53. The dollar was trading at 92.73 yen from 93.42 yen late Friday.

Monday's report also showed that shipments rose 2.3 percent from June, while inventories declined 0.2 percent.

Before output began to rise in March, it had posted a five-month losing streak as some of Japan's corporate icons such as Toyota and Sony announced drastic cutbacks in production and jobs amid Japan's steepest recession since World War II.

[Associated Press; By TOMOKO A. HOSAKA]

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