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11/28/2008- Japanese manufacturers reduced production in October

Bloomberg reports Japanese manufacturers reduced production in October and plan further cutbacks as a worsening global financial crisis weakens exports. Factory output fell 3.1 percent from September, when it rose 1.1 percent, the Trade Ministry said today in Tokyo. Economists surveyed by Bloomberg estimated a 2.5 percent drop. Exports fell last month at the fastest pace in almost seven years and companies are responding to the slump by cutting everything from production to jobs and investment. Sharp Corp. said last week it may have to reduce output of televisions and fire some of the people who work on production lines; Toyota Motor Corp. will get rid of half its temporary employees; and Canon Inc. has postponed construction of a new factory.
“The production drops aren’t over yet,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. The global slowdown has spread to the emerging markets that Japan’s exporters depended on as the financial crisis crippled demand in the U.S. and Europe, she said. Companies surveyed planned to reduce output 6.4 percent this month and 2.9 percent in December, the ministry said. The government downgraded its assessment of production, saying it’s on a “downward trend.” Separate reports showed the unemployment rate unexpectedly fell to 3.7 percent in October from 4 percent as people stopped looking for work. Household spending declined 3.8 percent, the eighth consecutive drop. Consumer prices excluding fresh food rose 1.9 percent from a year earlier, the second month of slower inflation, as commodity costs tumbled.

Yen’s Gains

The Nikkei 225 Stock Average slipped 0.1 percent as of 9:09 a.m. in Tokyo. The yen was little changed, trading at 95.42 per dollar from 95.41 before the figures were published. Japan’s currency has risen 11 percent against the dollar since September, adding to exporters’ woes by eroding their profits earned abroad. Japan’s economy shrank for a second quarter in the three months ended Sept. 30, entering the first recession since 2001. Figures have shown further deterioration: exports tumbled 7.7 percent last month, and shipments to Asia, where Japanese companies make about half of their overseas sales, fell for the first time since 2002. The International Monetary Fund predicts the U.S., Europe and Japan will all shrink next year, the first simultaneous recession since World War II. Goldman Sachs Group Inc. said last week the slump in the U.S., Japan’s biggest market, would be deeper than previously predicted, with gross domestic product likely to fall at an annual 5 percent rate this quarter.

Emerging Markets

The slowdown in the world’s top three economies is also taking a toll on developing markets. Sagging growth yesterday compelled China’s central bank to cut its benchmark interest rate by the most in 11 years. Toyota, whose profit may fall this fiscal year by about 70 percent, said yesterday it cut production 17 percent in October. Honda Motor Corp., which forecasts it may not turn a profit in the second half of the year, said last week it will reduce production of some sedans by 40,000 units and fire 270 contract workers.
“Pressure on the labor market is building,” said Tetsuro Sugiura, chief economist at Mizuho Research Institute Ltd. in Tokyo. “Companies have to cope with sharp slowdowns in sales an orders and they have to cut costs.” Still, although output has fallen every quarter this year, the declines are less dramatic than they were during the last recession of 2001. Production slid an average of 0.9 percent in the past three quarters compared with 3.4 percent in the previous downturn.