Japanese gloom deepens

Tentative recovery has yet to boost consumer spending

A surprise fall in industrial output has added to the growing gloom over Japan's economic prospects.

A slowdown in exports and personal computer manufacturing was blamed for a surprise month-on-month fall in industrial output of 0.8% in November.

Companies... are becoming very cautious over the direction of the economies in Japan, the US and Asia

Economist Junichiro Makino

The figures came as a blow to those hoping that Japan was continuing its recovery and might be able to avoid being dragged back into recession.

Analysts had been predicting a rise in industrial output, so the decline prompted a fall in the yen to a 16-month low against the dollar, and a 10-month low against the euro.

Daiwa Institute of Research economist Junichiro Makino said: "Companies... are becoming very cautious over the direction of the economies in Japan, the US and Asia."

The Tokyo government blamed the downturn on technical factors such as a fall in the number of mobile phones and electronics products being produced - including a one quarter fall in personal computer output.

Deflation fears

Japan's trade ministry forecast that December industrial output would grow 2% with January output expected to rise 1.5%.

But the Ministry of International Trade and Industry output figures added further gloom after data released on Tuesday showed unemployment at an eight-month high and retail sales falling for the 44th straight month.

This was further evidence that the tentative recovery from recession had resolutely failed to spread to consumer spending.

The figures showed that shop prices had fallen 1% in 2000, adding to fears of deflation.

Japanese Prime Minister Yoshiro Mori added his voice to the concerns when he said he was not confident of a recovery in personal consumption.

Kyodo news agency quoted Mr Mori as saying, after visiting a Tokyo shopping district: "What bothered me most was (the sales of) watches and jewellery, which are things that cannot be bought unless you have money to spare."

Recession talk had already resurfaced amid fears that economic growth could contract in the third and fourth quarters of 2000.

There are also fears that Japan will be hit by the sharp slowdown being seen in the previously surging US economy.