Japan factory output falls short of expectations

[August 31, 2011]  TOKYO (AP) -- Japan's industrial production fell short of expectations in July as a strong yen, power shortages and slowing global economy compounded the struggle to recover from the March 11 earthquake and tsunami.

The Ministry of Economy, Trade and Industry said Wednesday that industrial production climbed 0.6 percent from the previous month. Its outlook for coming months is mixed.

The increase in July missed forecasts, reflecting the growing pressures of a strong yen and an uncertain global economy. Analysts also blamed electricity shortages around Tokyo and northern Japan.

In its previous report, the ministry had projected a 2.2 percent rise in July following a robust 3.8 percent gain in June.

The Nikkei 225 stock average closed little changed at 8,955.20 while most other Asian markets gained.

The world's No. 3 economy relies on exports to drive growth, and any downturn in overseas demand threatens to undermine progress made since the disaster. The tsunami wiped out much of Japan's northeast coast, damaging factories and disrupting critical supply chains for key Japanese industries like autos and electronics.

The auto industry has yet to completely bounce back. The Japan Automobile Manufacturers Association said in a separate report Wednesday that industrywide production in July fell 8.9 percent from the same month last year.

The chairman of the group, Toshiyuki Shiba, issued a statement Tuesday calling on Japan's new Prime Minister Yoshihiko Noda to revitalize the economy. The auto industry faces "unprecedented" yen strength, which is making domestic production increasingly difficult and threatening to trigger a hollowing out of Japanese industry.

Shiba, who is also chief operating officer at Nissan Motor Co., said the industry seeks steps to weaken the yen, expand economic partnership agreements and ensure a stable supply of electricity.

The outlook for the coming months is mixed. The ministry expects production to jump 2.8 percent in August, then fall 2.4 percent in September.

Shipments in July rose 0.2 percent, and inventories slipped 0.2 percent, the ministry said.

The projected decline in September came as a "significant shock" for Masamichi Adachi, senior economist at JPMorgan Securities Japan, who had expected gains to accelerate.

"It decisively poses a downside risk to our bullish view" on overall economic growth in the fourth quarter, he said in a report.

The direction of Japan's economy will depend in large part on the health of exports, which appear to be weakening, Adachi said.

Government data earlier this month showed that exports contracted for the fifth straight month in July.

[Associated Press; By TOMOKO A. HOSAKA]

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