-Japan economy stumbles in April, outlook grim
(Adds details on data, budget, METI comment)
By Yoko Nishikawa
TOKYO, May 29 (Reuters) - Shrinking output and a rise in
unemployment to near record levels sent Japan's economy deeper
into the mire in April, data showed on Tuesday, underlining the
tricky balancing act facing the new prime minister.
Industrial production fell 1.7 percent in April from the
previous month on a seasonally adjusted basis, the second
straight drop and slightly worse than a 1.0 percent decline
forecast by economists polled by Reuters.
The jobless rate swelled to 4.8 percent last month from 4.7
percent in March, just shy of a record 4.9 percent hit last
December and again in January, while year-on-year spending by
wage earners fell for the first time in five months.
Analysts said the fall in production reflected weak demand in
Japan's key export markets of the United States and Asia, as well
as anaemic demand at home, while aggressive corporate
restructuring kept unemployment rising.
"I'm extremely pessimistic about the future of the Japanese
economy," said Kazuhiko Ogata, senior economist at HSBC
Securities in Tokyo.
"There's basically no more room for the Bank of Japan to
lower interest rates further and Prime Minister Junichiro Koizumi
is moving towards fiscal tightening. With little sign that the
U.S. economy is truly on a recovery track, I think there's little
hope that the Japanese economy will come back any time soon."
Since becoming premier late last month, Koizumi has pledged
to reform the hidebound economy and put the brakes on its runaway
debt, but doing so without causing a painful fall-out in terms of
growth and jobs looks increasingly difficult.
The government put a brave face on the figures.
"I didn't think there was any surprise. It just underlined a
weakening trend in the economy," said Economics Minister Heizo
Takenaka. "We would like to closely monitor the trend from here."
Finance Minister Masajuro Shiokawa said Japan's economic
fundamentals were "not so bad given that deregulation was helping
to revitalise the private sector."
WORRYING OUTLOOK
Economists, however, were gloomy and traders cited the weak
data as a restraint on the yen on Tuesday and a key factor
dulling a rebound in stock prices after five days of losses.
Analysts also focused on a 2.1 percent rise in inventories
from March -- the biggest increase since April 1997 -- and said
the Ministry of Economy, Trade and Industry (METI), which
released the output data, appeared cautious in its outlook.
"Inventories have begun rising fairly sharply, meaning the
slowdown in demand has been steeper than people had anticipated,"
said Minako Iida, economist at Deutsche Securities.
METI expects manufacturers' output to rise 0.3 percent in May
before falling again in June by 0.8 percent, suggesting a
possible two percent drop for the April-June quarter after a 3.7
percent slide in the previous quarter, analysts said.
"A drop of more than two percent for two consecutive quarters
indicates that domestic output is in a clear downtrend," said
Tokyo-Mitsubishi Securities strategist Shinichi Sato.
Economists said that lurking under the chilling employment
figures and stifling consumer confidence is rising job insecurity
in a country where lifetime employment once virtually ensured.
Spending by Japanese wage earners' households, a key gauge of
consumer spending, fell a real 4.4 percent in April from a year
earlier to 347,882 yen ($2,887), the first drop in five months
and the biggest year-on-year drop since December 1999.
A ministry official, however, blamed the weak data mostly on
strong figures in April 2000. Spending fell a more subdued 1.3
percent from March, as consumers scrambled for for television
sets and washing machines ahead of new recycling laws.
Economists said Koizumi's promise to push forward painful but
crucial reforms could spur more unemployment as thousands of
overstaffed companies change the way they operate to become more
competitive. The government is already looking at ways to
strengthen the social safety net to prepare for this.
Loss-making Isuzu Motors Ltd on Monday became the latest firm
to announce sweeping lay-offs, saying it would cut 9,700 jobs
over the next three years, or 26 percent of its workforce -- the
most aggressive job cuts so far in the debt-laden auto industry.
In April, unemployment stood at 3.48 million, just short of a
record 3.49 million in March 2000.
The Ministry of Health, Labour and Welfare offered some
bright signs, however. It said there were 62 openings for every
100 job seekers in April, up from 61 in March, while the number
of new job offers for April rose 10.3 percent from a year earlier
to 633,321.
(With additional reporting by Tamawa Kadoya)
((Yoko Nishikawa, Tokyo Newsroom +81-3 3432 7587
tokyo.newsroom@reuters.com))
($=120 yen)
REUTERS
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