Japan Output Continues Recovery, but Outlook Murky - Wall Street Journal

TOKYO—Japanese industrial production continued to bounce back after the devastating impact of the March 11 earthquake and tsunami, rising for the fifth-straight month in August as the transportation, steel and electronic component sectors regained their footing.

WSJ's Andrew Monahan discusses Japan's industrial production figures, up for the 5th straight month in August. Global economic conditions, however, could prove challenging for Japan's economy in the coming months. Photo: REUTERS/Kim Kyung-Hoon

But the outlook for production over the next few months remains murky as the yen's strength, the financial crisis in the euro zone and a slowdown in the U.S. economy pose a threat to Japan's fragile recovery.

Output rose a seasonally adjusted 0.8% in August from the previous month, data from the Ministry of Economy, Trade and Industry showed on Friday.

While the ministry said industrial production has now almost completely recovered from the effects of the earthquake and tsunami, the result was below a median forecast for a 1.5% rise in a survey of economists by Dow Jones Newswires and the Nikkei. In July, production rose 0.4% from the previous month.

In a sign there may be a bumpy road ahead for production in the coming months, manufacturers polled by the ministry expect their orders to fall 2.5% in September, and climb 3.8% in October.

Manufacturers have now largely overcome post-quake production disruptions and the threat of power shortages due to the Fukushima Daiichi nuclear crisis and analysts are now focusing on how Japan will cope with the economic turmoil overseas as well as the yen's appreciation.

"External factors affected production negatively...the yen's strength was also a negative factor," Japan Research Institute chief economist Hidehiko Fujii said about Friday's output data. Still, the outlook for the Japanese economy may not change much, he added.

Other data released on Friday painted a similar picture of Japan's economy recovering from the impact of the March 11 disasters.

Japan's unemployment rate fell to 4.3% in August from 4.7% in July, improving for the first time in three months. But an official briefing reporters on the data noted that the drop in the figure does not necessarily mean an improvement in the labor market.

Meanwhile, the nation's core consumer price index rose for the second-straight month in August, partly due to an increase in energy prices.

The nation's core CPI rose 0.2% from a year earlier in the month, data from the Ministry of Internal Affairs and Communication showed, higher than the median forecast for a 0.1% gain in a poll of economists surveyed by Dow Jones and the Nikkei.

Core CPI for the Tokyo metropolitan area—an early indicator of price trends for the rest of Japan—fell 0.1% on year in September. In August, it declined 0.2%.

Write to Andrew Monahan at andrew.monahan@dowjones.net

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