Japan headed for its worst postwar recession as factory output slumped an unprecedented 9.6 percent in December, unemployment surged and households cut spending.

The drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said today in Tokyo.

The jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump in 41 years. Recessions in the U.S. and Europe and a slowdown in China have smothered demand for Japanese cars and electronics. Toshiba Corp., which is firing 4,500 workers, yesterday forecast a record annual loss and said it will delay building a chip factory. Honda Motor Co. this week widened production cuts.

“Japan’s economy is falling off a cliff,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “There’s really nothing out there to drive growth.” The Nikkei 225 Stock Average sank 3.4 percent at the morning close in Tokyo, led by Toshiba and Nintendo Co., which cut its profit forecast by a third yesterday. The Nikkei has fallen 10.1 percent this year, extending last year’s record 42 percent drop.

The yen traded at 89.55 per dollar from 89.99 before the reports were published. The Japanese currency’s 18 percent gain in the past year has compounded exporters’ woes by eroding the value of their profits earned overseas. Households Cut Back Household spending slid 4.6 percent, a 10th month of declines, separate figures showed.

Consumer prices excluding fresh food rose 0.2 percent in December from a year earlier, slowing from 1 percent in November. The month-on-month decline in production was steeper than the 8.9 percent economists predicted and the biggest since the figures were first compiled in 1953.

Output tumbled 11.9 percent in the three months to December, the ministry said, the fourth straight quarterly drop. Companies planned to reduce production a further 9.1 percent in January and 4.7 percent in February. “There’s a global synchronized recession and manufacturers are responding aggressively,” said Jan Lambregts, head of Asian research at Rabobank International in Hong Kong.

“That’s going to have a profound impact” on economic growth. The International Monetary Fund said this week that Japan’s gross domestic product will shrink 2.6 percent this year, the bleakest projection for any Group of Seven economy except the U.K.

That contraction would be Japan’s worst since World War II. Record Contraction Nishioka at RBS estimated GDP fell at an annual 14 percent pace from October through December. That would exceed a 13.1 percent drop in the first quarter of 1974 to become the sharpest on record. Economists predict a report later today will show the U.S. economy, Japan’s biggest market, shrank an annualized 5.5 percent pace last quarter, the biggest drop since 1982.

Japan’s recession began in November 2007, a government panel that dates the economic cycle said yesterday. The slump may last more than three years and exceed the 1980 to 1983 downturn to become the longest on record, Hiroshi Yoshikawa, a Tokyo University professor who heads the committee, said in an interview this month. “We’re in a very grave situation,” Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo today.

“Japan is being hit by this wave of weakening global demand.” Parliamentary gridlock has stymied the ruling Liberal Democratic Party’s efforts to pass a 10 trillion yen ($111.2 billion) stimulus package. The Bank of Japan, which last month lowered interest rates to 0.1 percent, has little room to counter the slump other than by purchasing corporate debt to ease a credit squeeze, which it started to do today.

Exports Collapse Exports tumbled a record 35 percent in December, decimating earnings and prompting companies to cut work hours and fire employees. Toyota Motor Corp., which is forecasting its first loss in 71 years, will halt domestic production for 14 extra days this quarter. Smaller rival Honda plans to axe all of its 3,100 temporary workers in Japan.

“If the production cuts ended with the carmakers that would be one thing, but the carmakers drag down the steelmakers and the suppliers along with them,” RBS’s Nishioka said. “The numbers are frightening.” Last month’s increase in the jobless rate was the sharpest since 1967, the statistics bureau said. Some 400,000 non-regular workers will lose their jobs by March 31, the Japan Manufacturing Outsourcing Association said this week.

That’s more than three times the 124,802 predicted by the Labor Ministry today. Job vacancies became the scarcest in five years, the ministry said today. The ratio of positions available to each applicant fell to 0.72, the lowest since November 2003.

“This deep recession could compel companies to cut full- time workers,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “The jobless rate could rise to around 5 percent, giving us more reasons not to expect consumer spending to support the economy.”

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Japan's Nikkei average slid 3.8% on Friday to hit its lowest close in two months, after Sony Corp's warning of a massive loss fuelled fears about the electronics sector amid growing economic gloom. The benchmark lost 5.9% for the week, its third consecutive negative week and the longest such streak in nearly four months. It has fallen 12.6% this year. The benchmark Nikkei shed 3.8% to 7,745.25, its lowest close since Nov. 20. Its three-week losing streak was the first such period since Sept-Oct 2008. The broader Topix lost 2.8% to 773.55... Hong Kong shares closed slightly lower on Friday as a series of profit warnings hurt confidence, but turnover was thin with risk-averse investors exiting the market early for the Lunar New Year holiday. The Hang Seng Index officially closed 0.6 percent lower at 12,578.60. Mainboard turnover dropped to HK$33.7 billion from Thursday's HK$35.4 bln... The Sensex opened a tad (10 points) lower at 8,804. The index moved into green and touched a high of 8,859 in early trades. The index, thereafter, slipped back into red and drifted to a low of 8,632 - down 227 points from the day's high - as the day progressed. The Sensex finally ended with a loss of 139 points at 8,674. In the process, the index ended the week with a significant loss of 650 points. (Reuters, Business Standard)

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The Sensex opened 89 points higher at 10,425, and soon touched a high of 10,470. The index faced a major jolt in form of the Satyam fiasco. Heavy selling in Satyam and select index stocks saw the index slip into the negative zone and drift lower as the day progressed. The index slumped to a low of 9,510, and finally ended with a huge loss of 749 points (7.2%) at 9,587. In the process, the index wiped out its entire gains registered in the last four trading days. Satyam slumped today following Ramalinga Raju's resignation as the company's managing director, and subsequent confession of a fraud in the company's accounts management by him. The stock, which, touched a high of Rs 189 in morning trades, saw a free fall and tumbled to a low of Rs 31. The stock finally ended with a huge loss of almost 78% (Rs 139) on the back of hefty volumes of around 14.30 crore shares.

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Hong Kong shares kicked off 2009 on a firm note, rising 4.6 percent to a two-week high on Friday amid thin volumes, led by strong gains in Chinese telecom companies on hopes of the imminent issuance of 3G licences. Stocks across the board notched up strong gains on hopes that the flow of bad news that pushed Hong Kong's blue chip index to its worst drop in over three decades last year would subside in the new year while attractive valuations would tempt investors back into the equity market. The Hang Seng Index finished 655.33 points higher at 15,042.81 after opening up 0.4%. The index rose more than 6 percent this week, helped in part by year-end window dressing in the last week of December. Turnover stayed slim at HK$30.5 bln ($3.9 bln) with many market participants still away on holidays... The Sensex opened 70 points higher at 9,973, and soon slipped into negative zone to touch a low of 9,864. However, on expectations of the government announcing second stimulus package, the index bounced back on a strong rally in capital goods, realty and banking counters and crossed the 10,000-mark. The index touched a day's high of 10,070. Profit booking in last trading session saw the index pare gains and finally settled with a gain of 55 points at 9,958. The market breadth was positive - out of 2,600 stocks traded, 1,702 advanced, 820 declined and 78 were unchanged today. (Reuters, Business Standard)