Japan's Factory Output Plunges, Industrial Outlook Turns Grim

By Tomoko A. Hosaka
Associated Press
Saturday, November 29, 2008

TOKYO, Nov. 28 -- Production at Japan's vital manufacturers is sinking fast -- and is projected to turn in its worst quarter ever -- as a plunge in global demand batters the core of the world's second-largest economy.

The government said Friday that industrial production in October fell a sharp 3.1 percent from the previous month. The result follows a 1.1 percent gain in September and is worse than market expectations for a 2.5 percent contraction.

Exports in October marked their biggest decline in seven years, and companies expect conditions to worsen. Factory output will likely plummet 6.4 percent in November and fall 2.9 percent in December, according to the Ministry of Economy, Trade and Industry.

At that rate, industrial production is on track for its biggest quarterly fall since the government began compiling the data in 1955, said Masamichi Adachi, senior economist at J.P. Morgan Securities in Tokyo.

Adding to the pain is a stronger yen, forcing a growing number of exporters to slash their expectations for profit, sales and spending.

Electronics giant Panasonic on Thursday revised down its annual profit forecast by 90 percent, blaming a strong yen, sluggish sales and heavy discounting.

Earlier, Toyota Motor reduced its full-year net profit forecast to $5.5 billion -- about a third of last year's earnings.

October's dismal production figures stem largely from heavy production cutbacks by auto companies, electronics firms and machinery makers.

"Exports are in the process of collapsing, and as a result industrial production is falling at unprecedented speed," said Richard Jerram, chief economist at Macquarie Securities in Tokyo.

The results, along with labor and spending data released separately, underscore the increasingly grim outlook for Japan as it grapples with recession and the perils of depending so heavily on overseas sales of its cars and gadgets.

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