Japan's industrial output rose in June for the fourth month running and manufacturers forecast more gains to come, suggesting that stimulus spending at home and abroad will prop up demand for cars and consumer electronics.
While output was still 23 per cent below year-ago levels, an 8.3 per cent quarterly rise in April-June was a record high, underlining expectations Japan emerged from recession in the second quarter, and manufacturers forecast further gains in the third quarter.
Combined with an inventory index reaching its lowest level in June since it was rebased in 2005, analysts said the data suggested companies are producing more than is needed solely to replenish inventories as global stimulus efforts have an impact.
The 2.4 per cent increase in June was in line with forecasts but was smaller than gains of nearly 6 per cent in April and May, when companies replenished stocks after cutting inventories aggressively during the global financial crisis.
Japan's government bond curve steepened on the prospects of an strengthening economy. The 10-year/20-year yield spread widened 1 basis point to 74 basis points, edging back towards a 15-month high of 78 basis points hit last week.
Still, the Ministry of Economy, Trade and Industry, which released the data, remained cautious. It said production was picking up but output was still lower than before the collapse of Lehman Brothers, which triggered the global economic downturn.
Rises in output of flat-screen TVs and automobiles suggested stimulus efforts were having an effect on demand, but worsening job conditions and weak capital spending meant the outlook was highly uncertain, a ministry official told a briefing.
Reflecting the effect of stimulus measures, manufacturers surveyed by the ministry expected output to rise 1.6 pe cent in July and 3.3 per ent in August. That would mean output would rise 7.4 percent in the third quarter even if there is no growth in September.
Underlining the broadening of demand, steelmakers increased output by 10.1 per cent in June and expect further gains in coming months on demand from automakers, suggesting car makers are no longer relying solely on drawing down inventories to meet demand.
Strong growth in China has supported Japan's exports, which fell in June from a year earlier by their smallest margin this year after big falls earlier in the year.
Japan's economy is expected to have grown a modest 0.4 per cent in the April-June quarter after a record 3.8 per cent decline in the previous quarter.
But analysts expect any recovery to be fragile as many companies slash jobs and cut back on capital spending.
Reuters