— Adds More Details Throughout
— Japan Nov Industrial Output -2.6% Y/Y; MNI Fcast -0.8%
— METI Forecast Index: Japan Dec Output +4.8% M/M, Jan +3.4%
— METI Keeps View: Japan Output Appears To Be Flat

TOKYO (MNI) – Japan’s industrial output fell at a
faster-than-expected pace in November, as the global slowdown and the
persistently strong yen threatened the sustainability of Japan’s
export-led recovery, government data showed Wednesday.

Production at the nation’s factories and mines fell a seasonally
adjusted 2.6% in November from the previous month after gaining 2.2% in
November, bringing the industrial output index down to 90.1, way below
the pre-disaster level of 97.9 in February.

The November headline figure was much worse the median forecast for
a 0.8% fall by economists in a Market News International survey.

The November rise was also below the 0.1% m/m decline predicted in
the ministry’s forecast survey released last month.

“Output of cars, communication equipments, steel fell amid flooding
in Thailand, strong yen,” a METI official told reporters at a post-data
briefing.

In November, output of transportation equipment — mostly
automobiles — fell 9.5% from the previous month, marking the first fall
in two months.

In addition, production of information and telecom equipment fell
23.7% in November from the previous month.

The latest trade data showed that global exports fell 4.5% on the
year to Y5.20 trillion in November, marking a second straight month of
declines.

The yen hit a post-war high of Y75.32 on Oct. 31, prompting
Japanese authorities to spend heavily on stemming a harmful rise in the
value of the Japanese currency.

Recent MOF data showed that Japan spent Y9.01 trillion on
intervening in the FX markets between Oct. 28 and Nov. 28, which raised
speculation that Japan conducted yen-selling operations not only on Oct.
31 but also on other working days during that period.

Japan has confirmed that it intervened in the foreign exchange
market on Oct. 31, when the yen hit a fresh life-time high of Y75.32
versus the dollar.

Nevertheless, economists are less pessimistic about prospects for
the world’s third-largest economy.

METI’s latest survey of firms’ forecasts showed that overall
production is expected to rise 4.8% m/m in December — revised up from
the 2.7% gain estimated in the previous survey — before rising 3.4% in
January (first estimate).

Based on the latest data and the outlook for the next two months,
METI maintained its overall assessment, saying,”Industrial production
appears to be flat.”

“Japan’s November output was deflated by the impact of the massive
flooding in Thailand, but there is growing prospect that overall
activity will gain traction going forward,” said Tatsushi Shikano,
senior economist at Mitsubishi UFJ Morgan Stanley Securities Co.

“A shift of output from Thailand is expected to support overall
production in coming months, while US economy is standing firm against
all odds and the Chinese economy is now showing some signs of a renewed
pick-up,” he said.

“While the fate of the sovereign debt crisis in Europe is far from
clear, given economic developments on other region or countries, Japan’s
industrial output, which has been drifting sideways since the last
summer, is most likely to regain traction,” Shikano added.

Junko Nishioka, chief economist at RBS Securities Co, a unit of
Royal Bank of Scotland, was not so optimistic about the near-term
outlook for the Japanese economy, but held a more positive view on the
future outlook.

“Japan’s industrial output will unavoidably undergo a mild
adjustment phase in the first quarter in line with a setback of the
global economy,” she said.

“Having said this, there is a good chance for the nation’s output
to re-enter cyclical uptrend going forward, given relative solid U.S.
economy and Asian economies,” she added.

The Conference Board said on Tuesday that its consumer confidence
index rose to an eight-month high of 64.5, as the U.S. economy is
gaining traction again.

Among incoming data to watch, the ISM manufacturing index, due Jan.
3, is expected to have increased to 53.5 in December from 52.7 in
November, according to a Market News International survey of economists.

Meantime, Japan’s industrial production in November declined 1.5%
from a year earlier, marking the first fall in two months, after rising
0.1% in October.

Other details from the latest data:

Shipments: Nov -1.5% m/m Vs Oct +0.2%, the first fall in two
months.

Inventories: Nov -0.8% m/m Vs Oct +0.9%, also the first fall in two
months.

The inventory-to-shipments ratio: Nov -1.7% vs Oct -0.9%

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **

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