Japan Heads for Worst Postwar Recession as Production Collapses

Jan. 30 (Bloomberg) -- Japan headed for its worst postwar recession in December as factory output slumped an unprecedented 9.6 percent, unemployment surged and households cut spending.

The drop in production eclipsed the previous record of 8.5 percent set only a month earlier, the Trade Ministry said today in Tokyo. The jobless rate soared to 4.4 percent from 3.9 percent, the biggest jump in 41 years.

Recessions in the U.S. and Europe and a slowdown in China have smothered demand for Japanese cars and electronics. Toyota Motor Corp., Sony Corp. and Honda Motor Co. are shutting factory lines and firing thousands of workers as plummeting sales abroad wipe out earnings.

“Japan’s economy is falling off a cliff,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “There’s really nothing out there to drive growth.”

The Nikkei 225 Stock Average fell 3.2 percent as of 9:31 a.m. in Tokyo. The yen traded at 89.71 per dollar from 89.99 before the reports were published. The Japanese currency’s 18 percent gain in the past year has compounded exporters’ woes by eroding the value of their profits earned overseas.

Household spending slid 4.6 percent, a 10th month of declines, a separate report showed. Consumer prices excluding fresh food rose 0.2 percent in December from a year earlier, slowing from 1 percent in November.

The month-on-month decline in production was steeper than the 8.9 percent economists predicted and the biggest since the figures were first compiled in 1953. Output tumbled 11.9 percent in the three months to December, the ministry said, the fourth straight quarterly drop.

‘Profound Impact’

“There’s a global synchronized recession and manufacturers are responding aggressively,” said Jan Lambregts, head of Asian research at Rabobank International in Hong Kong. “That’s going to have a profound impact” on economic growth.

The International Monetary Fund said this week that Japan’s gross domestic product will shrink 2.6 percent this year, the bleakest projection for any Group of Seven economy except the U.K. That contraction would be Japan’s worst since World War II.

Japan’s recession began in November 2007, a government panel that dates the economic cycle said yesterday. The slump may last more than three years to become the longest on record, Hiroshi Yoshikawa, a Tokyo University professor who heads the committee, said in an interview this month.

Exports tumbled a record 35 percent in December, decimating corporate earnings and bringing the global recession home to Japanese households as companies cut work hours and fire employees.

Toyota, which is forecasting its first loss in 71 years, will halt its home production for 14 extra days this quarter.

‘Frightening’

“If the production cuts ended with the carmakers that would be one thing, but the carmakers drag down the steelmakers and the suppliers along with them,” RBS’s Nishioka said. “The numbers are frightening.”

Last month’s increase in the jobless rate was the sharpest since 1967, the statistics bureau said, as manufacturers fired mostly temporary staff. Some 400,000 non-regular workers will be out of jobs by the end of March, the Japan Manufacturing Outsourcing Association reported this week, which was about five times more than a December estimate by the Labor Ministry.

“This deep recession could compel companies to cut full- time workers,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “The jobless rate could rise to around 5 percent, giving us more reasons not to expect consumer spending to support the economy.”

Parliamentary gridlock has stymied the ruling Liberal Democratic Party’s efforts to pass a 10 trillion yen ($111.2 billion) stimulus package that seeks to encourage consumer spending. The Bank of Japan, which last month lowered interest rates to 0.1 percent, has little room to counter the downturn.