Recovery at Japan's factories gathers momentum

[June 29, 2011]  TOKYO (AP) -- Japan's industrial production posted the sharpest rise in nearly six decades in May but was still below pre-quake levels as factories toiled to reverse the sharp downturn triggered by the March 11 disaster.

Industrial output rose 5.7 percent in May from the previous month, the government said Wednesday. In April, production was up 1.6 percent after a record plunge in March.

The improvement adds to signs that the world's No. 3 economy is rebuilding after the earthquake and tsunami damaged factories and caused parts shortages for manufacturers.

The growth in May is the steepest increase in factory production since March 1953 and was broadly in line with market expectations. It comes after a 15.5 percent slump in March when the massive tsunami devastated Japan's industrial northeast, crippled a nuclear power station that continues to leak radiation and caused widespread power shortages.

While factory output was still about 9 percent below pre-quake levels, the ministry upgraded its assessment of industrial production, describing it as "on a recovery trend."

The jump helped fuel a rally on the Tokyo Stock Exchange. The benchmark Nikkei 225 index climbed 1.5 percent to 9,797.26.

Sectors driving the expansion include transport equipment, general machinery and chemicals. Transportation-related production soared 36 percent during the month as automakers like Nissan Motor Co. continued to restore capacity.

The automaker resumed full output at its Iwaki engine factory in northeast Japan last month. Chief Executive Carlos Ghosn said earlier this week that overall production at his company has mostly recovered and will be back to normal by October.

Manufacturers of information and communication electronics equipment also benefited from robust sales of digital LCD televisions ahead of the termination of analog terrestrial TV broadcasts on July 24.

The ministry forecast factory output to rise 5.2 percent in June and 0.5 percent in July. Electricity supply constraints this summer could affect production, but economists generally agree that the recovery will likely continue in the months ahead.

But Goldman Sachs economist Chiwoong Lee said emerging concerns about the global economy could affect Japanese production.

"While we expect supply-side constraints to be less of a concern, we think it is important to pay close attention to domestic and overseas demand trends, which will be productions ultimate determinant," Lee said in a note to clients.

The government's report also showed shipments in May grew 5.3 percent, and inventory rose 5.1 percent.

[Associated Press; By TOMOKO A. HOSAKA]

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