Japan Inc slows as yen hits new lows

Japan's economy still has a mountain to climb in 2002

Industry in Japan lurched ever lower in November, according to new figures, as the ebbing confidence in the country's ability to dig itself out of its economic slump forced the yen to new lows.

A Ministry of Economy, Trade and Industry survey of industrial production saw its main index drop to 90.9, a 14-year low, as toy and car production slipped off their annual peak.

The austerity budget announced at the beginning of this week seems to have done little to calm fears about Japan's immediate future, shrouded in gloom as the country continues its third recession in a decade.

And the new figures - today's numbers also showed November was the eighth straight month of sliding retail sales - only reinforce the impression of a country on the skids and lacking direction.

The continuing contraction was highlighted by news that Toshiba's and Hitachi's debt have been downgraded by rating agency Standard & Poor's, reflecting "weakening profitability and cash flow protection".

Infection

The ongoing decline of the yen is also triggering opposition from Asian neighbours who are worried that a weaker yen will damage their own competitiveness.

The Taiwan dollar is at a 15-year low, and Chinese and South Korean politicians have both publicly criticised Japan's benign neglect of the dollar-yen rate.

"Countries in the world all feel worried about the current economic situation," said a Chinese foreign ministry spokeswoman.

"Japan, as a big economic power in Asia, should make its own efforts to stabilise and econourage development of the Asian economy."

Seoul in particular risks losing out both coming and going, with a weaker won tracking the yen and leading to higher prices for imports - and thus higher inflation.

The fresh slide saw the yen dip to three-year lows of 131.70 to the US dollar in late trading, having climbed back slightly as the low level triggered automatic buy orders.

No worries?

The progressive currency slippage seems to have the tacit approval of Japanese policy-makers.

The economics minister, Heizo Takenaka, told reporters that the yen's current rate was not out of step with economic fundamentals.

"It's within the anticipated range," he said.

And while Harihiko Kuroda, Japan's number one economic diplomat, preached caution, saying the ministry of finance is monitoring moves carefully, he still avoided criticising recent movements.

"It's the pace that Japanese authorities are concerned about, said Shogo Nagaya, who manages foreign exchange trading at Nomura Trust and Banking.

"But it seems they don't mind about the weak yen itself."

Small comfort

The economic data, however, carries some cheer for Japanese leaders.

While November's industrial output was 1.8% lower than the previous month, much worse than expected, there was evidence that inventories are beginning to shrink - suggesting that next year could see a return to production gains.

That could still be some way off, though, analysts say.

"I think we can say there is some progress in firms' inventory adjustment," said Kazuhiko Ogata of HSBC Securities.

"But output has not hit bottom, and I think it will take another half a year for it to do so."

The retail figures bear out the more pessimistic mood, down 2.7% in November from the year before.

And unemployment figures due out tomorrow are likely to show further expansion of Japan's army of jobless, to a new high of 5.5%.