Japan's industrial production rose
unexpectedly in December but this appeared to be a mere blip for
slumping output, which for all of 1998 posted its worst drop in
23 years, government data showed on Thursday.
The latest data came as Moody's Investors Service raised
alarm at Japan's fiscal stance already the most rapidly
deteriorating among the Group of Seven industrialized nations
leaving the door open for a future ratings downgrade.
Output rose 1.3 percent in December from November, the
Ministry of International Trade and Industry said, well above
the average 0.2 percent rise forecast by economists in a Reuters
survey and MITI's own prediction of a 0.3 percent increase.
But analysts said the improvement was largely a result of
huge public works spending, not private demand, and MITI
acknowledged that the numbers did not show any recovery trend.
"Public demand is really the only support, exports look
like they're on the downtrend, and private demand at best is
stabilized and, as we see things headed, is likely to continue
trending down," said economist Richard Hostetter at West LB
Shipments rose 1.4 percent in January, while bloated
inventories shrank 1.7 percent, MITI said.
But for the October-December quarter industrial production
dipped 0.4 percent, and for the full year it fell 6.9 percent,
the first fall in five years and the biggest since the 1970s oil
Moreover, while MITI forecast manufacturing output would
rise 1.0 percent in January, the ministry said it would likely
slip back 0.9 percent in February.
"Downward pressure on output from stock adjustment is not
as strong as it has been, but inventory levels are still high,"
a MITI official said. "It is now a question of how much final
demand will spur output growth."
But economists said they saw little sign of private demand
Retail sales fell 4.7 percent in December from a year
earlier, while overall wholesale and retail sales fell 5.2
percent, MITI reported separately.
"The severe situation will remain in January and it is
difficult to find positive signs in this data," another MITI
official told reporters, adding that there was no evidence of a
lift yet from the government's massive tax cut packages.
"I think consumers are worried about uncertainty in the
future and reluctant to buy," he said.
Domestic car production in December, released later on
Thursday by an auto industry group, fell 8.0 percent from a year
earlier, and for the whole of 1998 was down 8.4 percent.
The bounce in industrial production could give the
government more breathing room before a decision, expected by
many economists, to pump more money into the economy in an
attempt to hit the official target of 0.5 percent economic
growth for the fiscal year starting in April.
Hostetter at West LB told Reuters Television the government
would likely wait to see January-March economic data and some of
the April-June figures before compiling a stimulative
Japanese foreign exchange and bond markets largely ignored
the data and reacted only mildly to comments by Vincent Truglia,
managing director of influential ratings agency Moody's, who
dismissed market rumors that his presence in Tokyo marked any
imminent downward revision in Japan's Aa1 sovereign rating.
But he left the door open for future action, saying that
with the economy headed for another year of contraction, the
government is padding its revenue through bond issues,
threatening to push the ratio of debt to gross domestic product
as high as 140 percent by 2003.
"This would be far in excess of anything ever seen in an
industrialized country," Truglia said.
Lehman Brothers economist Matthew Poggi, saying that a
mid-year extra budget was likely, said the ensuing increase in
government debt to pay for the package would further push up
long-term interest rates.