TOKYO, March 30: Clouds hanging over Japan's economy darkened on Monday as February industrial production levels fell further than expected and output forecasts for the coming months showed no relief in sight.Industrial output fell 3.3 per cent in February from the previous month, more than most economists had forecast, and is expected to fall 2.5 per cent month-on-month in both March and April, the trade ministry said.
Inventory build-up continued in February for the fourth month in a row, rising 0.5 per cent from a month earlier. This was the main reason behind the weak production levels, a trade ministry official told reporters.
"The downtrend in industrial production will continue," he said, adding that the weak trend in output had become a lot clearer and as a result the ministry had slightly downgraded its assessment to "the tone of output is weak" from "output is moving weakly."
Analysts said the data reinforced views that Japan's economy was in a bad way and saw little cheer for output in thenear future.
"Efforts to keep inventories down have failed. One reason for that is the final demand is falling faster," said head of research Jason James at HSBC Securities Japan. "I think we'll see continuing negative numbers, at least for the next six months, as a trend."
The news sent the yield on the benchmark government bond sliding to 1.590 from 1.615 per cent on Friday, although the stock and foreign exchange markets shrugged off the data.
And in another bleak statement on the economy, the chief of Japan's Economic Planning Agency Koji Omi said business conditions remained tough despite the government's repeated predictions that a recovery would begin in the spring.
"We have said the economy would pick up around the time cherry trees blossomed, but current conditions certainly remain severe," Omi told the budget committee of the lower house.
Other analysts said the data would increase pressure on prime minister Ryutaro Hashimoto and the ruling Liberal Democratic Party (LDP) step up plans tocut taxes and change the fiscal reform law.
The LDP outlined a 16 trillion yen ($123 billion) stimulus package of mostly public works spending for the economy last Thursday but left most details hanging.
Left out were the key issues of whether income tax cuts would be included and how much fresh government spending it would contain, although LDP leaders say income tax cuts may be included when details of the package are out over the next month.
But hints over the contents are not lacking. Former prime minister Kiichi Miyazawa, a key architect of the LDP's recent steps to stabilise the financial sector, said on Sunday that around four trillion to five trillion yen in fresh spending could be expected in the package.
Miyazawa also said he did not know what kind of figure was being considered for tax cuts but that he thought three trillion yen would be a good figure to complement public works spending. An LDP source said last week there was a consensus in the party that a two trillion yen income rebatereintroduced this year would be made permanent.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
