Output Rises in Japan's Auto Factories

TOKYO April 29, 2009; Tomoko A. Hosaka writing for the AP reported that Japan's struggling manufacturers are showing signs of life as the government said Thursday that industrial production rose for the first time in six months in March.

What's more, the outlook is encouraging: factory output -- pivotal in this export-oriented economy, the world's second-biggest -- is projected to rise 4.3 percent this month and another 6.1 percent in May.

Stocks surged on the report, with the benchmark Nikkei 225 index soaring 4 percent during morning trading.

After tumbling sharply in recent months, industrial output rose 1.6 percent from February -- beating an average market forecast for a 0.9 percent uptick in a survey of economists by Kyodo news agency.

While meager, the monthly gain represents a marked turnaround from February's 9.4 percent plunge and January's record 10.2 percent tumble, suggesting that a recovery has emerged for a key part of the world's second-largest economy.

March's increase was led mainly by electronic parts and general machinery, said the Ministry of Economy, Trade and Industry, which upgraded its assessment of industrial production to "sluggish" from "drops steeply."

Japan, which had relied on foreign sales of its cars and electronic gadgets to drive economic growth, has been mired in its deepest recession since the end of World War II as consumers and companies around the world slash spending.

In response, major exporters such as Toyota Motor Corp. and Sony Corp. have moved quickly to adjust by reducing shifts, suspending factory lines and announcing thousands of job cuts over the past few months. Their strategy may now be paying off as they move to replenish slimming stockpiles.

"After a heavy correction that began last autumn -- production fell 35 percent between July and February -- it appears that progress has been made on the production and inventory fronts," said Chiwoong Lee, an economist at Goldman Sachs in Tokyo.

Inventories dropped 3.3 percent in March in the third consecutive decline, while shipments grew 1.4 percent.

Other recent economic figures contain glimmers of hope. Exports in March managed to rise 2 percent from the previous month, the first increase in nearly a year.

Still, the overall outlook for Japan remains grim: The economy is likely to shrink 3.3 percent this fiscal year through March 2010, the Cabinet said earlier this week.

On Monday, Prime Minister Taro Aso's Cabinet submitted a massive supplementary budget to finance a new stimulus package. The proposal calls for a record 15 trillion yen ($155 billion) in government spending, equivalent to about 3 percent of Japan's gross domestic product.

The administration says the newest stimulus package will help protect the economy from slipping further while laying the foundation for future growth, including a subsidy for drivers buying "eco-friendly" cars. It also provides support for the unemployed and small businesses.

The new consumer subsidy should help spur production among automakers in particular, Lee noted. He expects production to keep expanding until autumn but warned that it could "fall back between then and the fiscal year-end due to deterioration in the employment situation and weak consumption."