Japan factory output logs sharpest rise in 56 yrs

TOKYO: Japan's factories ramped up their production at the fastest pace in 56 years in the second quarter, data showed Thursday, boosting hopes the world's number two economy has returned to positive growth.

Japanese industrial output plunged last year in the midst of a brutal global economic downturn, pushing Asia's biggest economy into its worst recession since World War II, but analysts say the worst appears to be over.

Production soared 8.3 percent in April-June from the previous quarter, the sharpest rise since 1953, following a record slump of 22.1 percent in the first three months of the year, the government said.

The data suggest Japan's economy will post "solid positive growth" in April-June after the worst performance in decades in the previous quarter, said Takuji Aida, an economist at investment bank UBS.

"Production is rising as demand from China is holding up. The US economy is also expected to grow in July-September," Aida said.

Japan sank into recession in the second quarter of 2008 as consumers around the world stopped buying the cars, high-tech goods and other exports that drove the country's recovery from its 1990s recession.

Automakers in particular slashed production and fired thousands of workers in response to a sharp drop in demand, but they are now ratcheting up output again after their bloated stockpiles were massively reduced.

"We expect a renewed drive to bolster production in the auto industry in July, and relatively strong expansion in the steel industry too," said Morgan Stanley economist Takehiro Sato.

Japan's economy contracted at an unprecedented 14.2 percent annualised pace in the first quarter of 2009 but recent data have spawned hopes that a fledgling recovery is underway.

Japan's trade surplus grew in June for the first time in 20 months as an export slump eased while factory output rose 2.4 percent from the previous month, after a revised rise of 5.7 percent in May.

Compared with a year earlier, however, industrial production was still down 23.4 percent in June, reflecting the extent to which output has collapsed because of the worldwide economic slowdown.

Factory output is expected to rise by 1.6 percent in July and 3.3 percent in August, according to the manufacturers' own forecasts, the ministry said.

The production plans point to "a steady recovery... against a background of growth in export demand as the global economy recovers," said Naoki Murakami, chief economist at Monex Securities.

Worldwide pump-priming efforts, particularly in the United States, China and Japan, appear to be showing some positive effects, but there are concerns about the outlook once the impact of the stimulus spending measures fade.

Consumer spending remains lacklustre in Japan, against a backdrop of a shrinking population and rising unemployment.

The jobless rate hit 5.2 percent in May and is widely expected to top its post-World War II high of 5.5 percent at some point.

Japan is to release April-June gross domestic product data on August 17.