Japan factory output falls short of expectations (AP)

By TOMOKO A. HOSAKA, Associated Press Tomoko A. Hosaka, Associated Press – 2 hrs 37 mins ago

TOKYO – Japan's industrial production fell short of expectations in July as a strong yen, power shortages and slowing global economy compounded the struggle to recover from the March 11 earthquake and tsunami.

The Ministry of Economy, Trade and Industry said Wednesday that industrial production climbed 0.6 percent from the previous month. Its outlook for coming months is mixed.

The increase in July missed forecasts, reflecting the growing pressures of a strong yen and an uncertain global economy. Analysts also blamed electricity shortages around Tokyo and northern Japan.

In its previous report, the ministry had projected a 2.2 percent rise in July following a robust 3.8 percent gain in June.

The Nikkei 225 stock average closed little changed at 8,955.20 while most other Asian markets gained.

The world's No. 3 economy relies on exports to drive growth, and any downturn in overseas demand threatens to undermine progress made since the disaster. The tsunami wiped out much of Japan's northeast coast, damaging factories and disrupting critical supply chains for key Japanese industries like autos and electronics.

The auto industry has yet to completely bounce back. The Japan Automobile Manufacturers Association said in a separate report Wednesday that industrywide production in July fell 8.9 percent from the same month last year.

The chairman of the group, Toshiyuki Shiba, issued a statement Tuesday calling on Japan's new Prime Minister Yoshihiko Noda to revitalize the economy. The auto industry faces "unprecedented" yen strength, which is making domestic production increasingly difficult and threatening to trigger a hollowing out of Japanese industry.

Shiba, who is also chief operating officer at Nissan Motor Co., said the industry seeks steps to weaken the yen, expand economic partnership agreements and ensure a stable supply of electricity.

The outlook for the coming months is mixed. The ministry expects production to jump 2.8 percent in August, then fall 2.4 percent in September.

Shipments in July rose 0.2 percent, and inventories slipped 0.2 percent, the ministry said.

The projected decline in September came as a "significant shock" for Masamichi Adachi, senior economist at JPMorgan Securities Japan, who had expected gains to accelerate.

"It decisively poses a downside risk to our bullish view" on overall economic growth in the fourth quarter, he said in a report.

The direction of Japan's economy will depend in large part on the health of exports, which appear to be weakening, Adachi said.

Government data earlier this month showed that exports contracted for the fifth straight month in July.

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FOREX-Dollar climbs as investors trim Fed expectations - Reuters

* Dollar edges up on chances Fed plays it safe Friday

* U.S. durable goods show surprisingly strong rise

* Investors still on alert for yen intervention (Updates prices; adds comment, details, changes byline)

By Wanfeng Zhou

NEW YORK, Aug 24 (Reuters) - The dollar rose against major currencies on Wednesday, erasing early losses as investors trimmed bets against the U.S. currency on fear the Federal Reserve may not signal new stimulus for the economy this week.

The yen weakened to around 77 per dollar, not far from a recent record low, after Japan unveiled new steps to curb its currency's strength and after Moody's downgraded the country's sovereign debt.

Moves in the currency market were limited, and traders said there was little conviction behind them, as reflected by several back-and-forth moves inside fairly tight ranges.

While investors are worried that the U.S. economy may slip into recession, they are not entirely convinced that Fed Chairman Ben Bernanke is ready to announce another bond-buying program on Friday. The Fed already pledged earlier this month to hold interest rates near zero until at least 2013.

"Markets are looking forward to Bernanke and Jackson Hole and are increasingly reluctant to carry risk into the speech in coming days," said Brad Bechtel, managing director and head of sales at Faros Trading in Stamford, Connecticut.

Bernanke used last year's annual Jackson Hole speech to hint at another round of quantitative easing, which eventually pumped $600 billion into the financial system.

More money in the system depresses the value of the dollar and encourages investors to seek higher returns elsewhere.

The euro was last down 0.1 percent at $1.4420 EUR=EBS while the dollar reversed early losses to trade up 0.4 percent at 76.98 yen JPY=EBS.

Greg Salvaggio, vice president of trading at Tempus Consulting in Washington, said "markets are bit confused about whether there will be a QE3 or not" and investors are taking profits. He said a $130-per-ounce decline in gold XAU= over the last two days reflects that.

A surge in U.S. July orders for long-lasting durable goods also eased some fear about the U.S. economy. [ID:nN1E77N096]

YEN INTERVENTION STILL A RISK

Despite its gains, the dollar remained near a record low of 75.941 yen set on the EBS platform last week, and some analysts said that could spark another round of intervention by Japan to weaken the currency.

Japan unveiled a $100 billion credit line on Wednesday for companies investing overseas and stepped up monitoring currency positions of financial institutions in an attempt to curb the yen's strength.

But Citigroup currency strategist Todd Elmer said the new scheme "treats the symptoms, not the underlying cause (of yen strength), so it's not going to have any impact whatsoever in supporting dollar/yen."

But while the yen is a favorite shelter for investors who want to exit trades in higher-yielding but riskier assets, yen appreciation hurts Japan's economy by undercutting its exports.

Societe General strategist Sebastien Galy said Japan "is laying the ground for far more aggressive policy."

He said the dollar may grind lower in the near term and could break through its record low. "But when it does, the next shoe will drop," he said.

Bank of Japan data suggested Japan sold roughly 4.5 trillion yen in a currency intervention on Aug. 4, its biggest-ever one-day action, but it has had limited effect.

Moody's Investors Service cut its rating on Japan's government debt by one notch to Aa3, blaming a build-up of debt since the 2009 global recession and revolving-door political leadership that has hampered effective economic strategies. (Additional reporting by Steven C. Johnson; Editing by Padraic Cassidy)

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