Japan factory output jumps but jobless rate rises

TOKYO — Japan’s industrial production jumped at the fastest pace in 56 years in April, signaling a recovery among manufacturers, but rising joblessness and falling prices clouded prospects for the world’s second-biggest economy.

Factory output surged a stronger-than-expected 5.2 percent from March, rising for the second straight month and marking the biggest increase since March 1953. Manufacturers predicted further gains in May and June.

Companies making electric parts, chemicals and transport equipment posted particularly strong gains.

But the pain continues to deepen for workers and consumers. The jobless rate rose to six-year-high of 5 percent, household spending fell and the specter of deflation is back.

Analysts cautioned against getting too excited about the latest output data, saying that it might just show inventory levels have fallen after recent cutbacks.

“The big question mark is the sustainability of the production gains,” which depends on renewed consumer spending — which is unlikely amid higher joblessness, said Susumu Kato, chief economist at Calyon Capital Markets Asia in Tokyo. “It’s still quite an uncertain future.”

Like their Asian counterparts, Japanese exporters have been battered by the unprecedented slowdown in global demand triggered by the U.S. financial crisis last year. Manufacturers including Toyota Motor Corp. and Sony Corp. responded quickly and aggressively by slashing production and jobs in an effort to lower costs and trim stockpiles.

Earlier this week, camera maker Nikon Corp. said it will cut 1,000 jobs, mostly in Japan, to save 8 billion yen ($84 million) in annual costs.

Inventory levels in April declined 2.7 percent, according to the Ministry of Economy, Trade and Industry.

Manufacturers expect production to soar 8.8 percent in May and 2.7 percent in June due to brightening prospects for a rebound in overseas demand. Trade data Wednesday showed that Japan’s export slump is slowing, and the central bank modestly upgraded its economic assessment last week.

Investors cheered the results, sending the benchmark Nikkei 225 stock average up 0.8 percent to a seven-month high.

Masayoshi Okamoto, head of dealing at Jujiya Securities in Tokyo, called the day a turning point for the stock market.

“Up until now, the market had pessimism on the mind,” he said. “But it’s finally beginning to believe that a recovery is possible.”

The cost cuts that have benefited companies, however, are taking a greater toll on workers and families. The jobless rate of 5 percent is the highest since 2003.

Chiwoong Lee, an economist at Goldman Sachs in Tokyo, predicts unemployment will hit 6 percent by the end of 2010, breaking the previous record 5.5 percent last seen in June 2003. He warns that weak consumption and expanding job losses could reverse the recovery in industrial output later this year.

The total number of jobless people climbed by 710,000 from a year earlier to 3.46 million, the Ministry of Internal Affairs and Communications said. Those with employment fell by 1.7 from the previous year to 63.22 million.

“I’m very disappointed,” Finance Minister Kaoru Yosano said about the rising jobless rate, according to Kyodo news agency. “But we have to accept it as reality.”

The worsening labor conditions resulted in cautious consumers who reduced family budgets and spent less at stores. Household spending fell 1.3 percent in April from the previous year, the government said a day after it released other data showing retail sales dropped 2.9 percent in the month.

Japanese Prime Minister Taro Aso is banking on massive government outlays to spark a turnaround.

His newest $150 billion stimulus package consists of programs to bolster consumer spending, which accounts for more than half of Japan’s economy. Steps include incentives to buy energy-efficient appliances and cars, as well as help for the unemployed and small businesses.

Lawmakers passed the extra budget compiled to fund the measures Friday.

While the stimulus measures will certainly help in the short-term, analysts say, any economic uptick may prove fleeting as the impact of government spending fades.

Separately, the government said prices fell in April. The nation’s core consumer price index, which excludes volatile fresh food prices, declined 0.1 percent.

The core CPI for Tokyo retreated 0.7 percent in May, suggesting that prices nationwide are headed further south. Prices in the nation’s capital are considered a leading barometer of price trends across Japan.

“Japan is heading for another lengthy period of deflation and it could involve more rapid price declines than during the previous decade,” said Richard Jerram, chief economist at Macquarie Capital Securities in Tokyo.

Although deflation will likely be a “relatively slow-moving” problem, it will act as an “enduring drag on domestic economic performance,” he adds.