Japan’s Industrial Production Falls, Unemployment Stays at 4.9%

March 30 (Bloomberg) -- Japan’s industrial production fell in February and the unemployment rate held at the lowest level since March 2009, underscoring an uneven economic recovery that has yet to end deflation.

The 0.9 percent drop in factoryoutput from a month earlier snapped 11 straight gains and followed a 2.7 percent increase in January, the Trade Ministry said in Tokyo. The jobless rate stayed at 4.9 percent after two monthly declines.

The reports highlight the challenges for Bank of Japan policy makers, who have said economic growth has matched or exceeded their projections even as consumer prices keep falling. Without clearer evidence that the recovery is faltering, the central bank may next week hold off on any further expansion in its liquidity injections, said Junko Nishioka.

“Exports have been very robust for a surprisingly long time, despite the yen’s strength, and as long as this trend continues, there is little concern that the production recovery will reverse course,” said Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo. “If there is any chance for the central bank to act, it would do so at its second April meeting at the end of the month,” when board members publish their twice-annual outlook for the economy and prices, she said.

Separate government reports today showed household spending slipped 0.5 percent in February, the first decline in seven months, while the ratio of jobs available to applicants improved for a second month.

The yen traded at 92.31 per dollar at 11:11 a.m. in Tokyo from 92.52 before the figures were published. The Nikkei 225 Stock Average climbed 0.5 percent, taking its gains this month to 9 percent.

Lunar New Year

Production fell more than the 0.5 percent median decline projected in a Bloomberg News survey of economists. The decline was a reaction to January’s gain, which was the biggest in eight months, said Katsuya Shimura, director of economic analysis at the Trade Ministry. China’s Lunar New Year holiday was also a contributing factor because it took place in February, slowing exports to Japan’s biggest market, he said.

Companies surveyed by the Trade Ministry expect to increase production by 1.4 percent in March before trimming output 0.1 percent in April. The government left unchanged its assessment that production is picking up.

Output surged 31.3 percent from a year earlier, when the country bore the brunt of a collapse in world commerce amid the financial crisis, today’s report also showed. More than $2 trillion in stimulus spending worldwide helped Japanese exports surge the most in 30 years in February from a year ago.

‘Recovery Will Continue’

“We may see the economy slow somewhat next fiscal year, but the recovery will continue,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo, adding that the drop in production was “temporary.”

Improvements in the jobless rate from a postwar high of 5.6 percent in July have yet to eradicate deflation, providing a headache for policy makers. The Bank of Japan doubled a lending program for commercial banks to 20 trillion yen ($217 billion) following government calls for it to do more to spur consumer prices that fell for a 12th month in February.

The policy board will also have the latest reading on business sentiment when they meet on April 6-7. The Bank of Japan’s Tankan index of confidence among large manufacturers will climb for a fourth quarter, according to the median forecast of economists surveyed ahead of the report due April 1.

Brighter global prospects are encouraging companies from Honda Motor Co. to Showa Denko K.K. to boost manufacturing.

Showa Denko

Showa Denko, the world’s second biggest hard-disk maker, will increase output of magnetic disks three months earlier than planned because of stronger-than-expected demand for personal computers in China and other emerging markets, Chief Financial Officer Ichiro Nomura said this month.

Honda, Japan’s second-largest carmaker, increased global output 49 percent in February from a year earlier as demand from Asia surged and the U.S. economy recovered. The Tokyo- based company raised domestic production 52 percent.

Toyota Motor Corp., the world’s biggest automaker, boosted manufacturing 83 percent, even as its American sales slumped because of millions of vehicle recalls for problems including unintended acceleration.

“We don’t need to be overly pessimistic about the impact from the Toyota recall problem on overall production,” said Susumu Kato, chief economist for Japan in Tokyo at Credit Agricole CIB and CLSA.

The absence of change in the unemployment rate masked a drop in jobs in February. The economy lost a seasonally adjusted 250,000 jobs after adding 540,000 the previous month, the most in more than three decades, the statistics bureau said.

The government sector led the drop, according to month-on- month breakdowns. Medical and welfare firms added workers.

“January’s results were a little too good to be true” because companies still carry too many workers, said Maruyama at Itochu. “But we are starting to see a gradual upturn in job advertisements, and we’re starting to see some hiring, too.”