TOKYO (MNI) – Japan’s economy is steadily recovering from the March
11 earthquake, as efforts by Japan Inc. to fix quake-ravaged supply
chains pushed up the nation’s industrial output for a third straight
month and eased pressure on consumer sentiment.
But analysts warned of a slower recovery going forward amid growing
concerns about a spread of power shortage, while an acceleration of the
appreciation of the yen has also emerged as a fresh stumbling block.
Production at the nation’s factories and mines rose a seasonally
adjusted 3.9% in June from the previous month, bringing the industrial
output index to 92.7, the highest since February this year when it stood
at 97.9, according to data from the Ministry of Economy, Trade and
Industry.
More importantly, METI’s latest survey of firms’ forecasts showed
that overall production is expected to rise 2.2% m/m in July – revised
up from the 0.5% rise estimated in the previous survey — and will
increase further by 2.0% in August (first estimate).
“A set of data confirmed that the Japanese economy is gradually
recovering against all odds, driven by efforts by private-sector
companies to fix quake-ravaged supply chains,” said Takeshi Minami,
chief economist at Norinchukin Research Institute Ltd.
For instance, output of transportation equipment, which was the
hardest hit of the March 11 quake, rose 18.5% in June, the second
straight monthly rise, following a 36.6% gain in May.
Output of mini vehicles with engine displacement of less than 660cc
rose 16.9% in June, while output of large passenger cars with engine
displacement of over 2000cc surged 28.5% and output of small passenger
cars with engine displacement of over 660cc but less than 2000cc jumped
17.9%.
As Japanese automakers, including Toyota Motor Corp, step up their
normalization efforts, they now plan to hire a combined 7,000 contract
workers, according to recent media reports.
Toyota is likely to sign up some 3,000 to 4,000 contract workers as
it aims to bring operations at domestic factories to the pre-quake level
by the end of this year, while its smaller rivals, Nissan Motor Co and
Honda Motor Co, will each hire 1,000 contract workers, according to a
report from the national broadcaster NHK.
As a result, the ratio of job offers to seekers rose to 0.63 in
June from 0.61 in May.
As Japan Inc’s stepped-up efforts to normalize supply chains helped
ease concerns about the job security and shore up consumer confidence,
Japanese retail sales rose 1.1% in June, the best reading since +1.5% in
November 2010.
Japan’s seasonally adjusted Consumer Confidence Survey index rose
to 35.3 in June from 34.2 in May, recovering from 33.1 in April, the
lowest since April 2009.
But power shortage problems now loom large.
The government recently called on corporations and households in
western Japan to conserve electricity as problems at two power plants
raised the risk of power shortages.
The move came after the combined output capacity of five utilities
serving western Japan — Kansai Electric, Hokuriku Electric Power Co,
Chugoku Electric Power Co, Shikoku Electric Power Co and Kyushu Electric
Power Co — is expected to fall short of peak demand by 1.2% in August,
according to recent report from the Nikkei.
Kansai Electric has recently shut down the No. 1 reactor at its Ohi
nuclear power plant in Fukui Prefecture because of problems with an
accumulator, bringing down its output by 1.18 million kilowatts.
Chugoku Electric has suspended operations at a 1 million kilowatt
fossil-fuel-fired plant due to boiler trouble.
The government has already asked for a 15% power saving in areas
served by Tokyo Electric Power Co.
“As power shortage problems push up production costs at Japanese
manufacturers, ongoing recovery is not likely to gain traction but it
may slow down,” said Junko Nishioka, chief economist at RBS Securities
Inc, a unit of Royal Bank of Scotland.
“Thus, industrial production is likely to take some time before it
can return to the pre-quake level,” she added.
An official from METI said today that even if METI’s projection for
July and August output is met, reading of the August output index will
be still below the pre-quake level of 97.9.
“If there had been no power problems, the industrial production
index could have already recovered to the pre-quake level,”
Norinchukin’s Minami said.
The ongoing recovery may also lurch into crisis, as the yen is
approaching a life-time high amid uncertainties about the sovereign debt
of the world’s largest economy.
The yen reached Y77.54 versus the dollar on July 27, just shy of a
record high of Y76.25 hit in March, ahead of Aug. 2 deadline on debt
ceiling talks in the U.S.
Standard & Poor’s said last week that there is a 50-50 chance the
U.S. AAA credit rating could be cut within three months.
“It is evident that not many Japanese manufacturers can live with
the current level of the yen,” Nishioka said.
“If the yen were to keep appreciating after the Aug. 2 deadline and
stock prices were to keep falling, a chance for dollar-buying operation
in the FX market and additional monetary easing by the Bank of Japan may
emerge,” she added.
Bank of Japan policy board member Hidetoshi Kamezaki this week said
the recent appreciation of the yen against major currencies may not
reflect fundamentals as Japan is still recovering from the supply-side
shock of the March disaster.
But he also told a news conference in this western Japanese city
that there is no need for the BOJ to take further monetary policy action
at this point despite fears that a further rise in the yen could
undermine the export-led economic recovery.
“We will take action proactively, if needed, after checking whether
it (the high yen) is becoming an impediment to the BOJ’s goal of guiding
the economy to sustained growth,” he said.
Japanese authorities intervened in the foreign exchange markets to
the tune of Y692.5 billion in March 2011.
The yen-selling intervention was part of a coordinated move by the
Group of Seven industrialized nations to aid Japan in the wake of the
March 11 earthquake disaster.
The intervention was the first concerted G-7 forex action since
September 2000, when the euro came under heavy selling pressure as
capital flowed into the U.S. stock market at the peak of the IT bubble.
In September 2010, the reserves were pushed up by the Japanese
government’s large-scale forex intervention to sell yen for the U.S.
currency — the first government intervention in over six years — in a
bid to prevent the yen’s rapid rise from hurting exporter profits and
thus a sustained economic recovery.
Before the large-scale intervention to sell a total of Y2.125
trillion for the U.S. dollar on Sept. 15, 2010, Japan had stayed out of
the forex market since mid-March 2004, when it ended its massive
15-month-long yen-selling operation.
tokyo@marketnews.com
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