Japanese industry faces rough ride
Japanese factory output dipped 0.3% in October to levels not seen since March 1988, the Ministry for Economy, Trade and Industry said.
The gloomy data, the latest in a long line of bad news to emerge from Japan recently, will reinforce fears that Asia's economic powerhouse is heading for a protracted recession.
Although the decline came in well below official forecasts of a 0.8% drop, analysts fear that factory output will fall further in the coming months.
Hope for pre-Christmas boost
The Japanese government is predicting a 1% decline in November, followed by a 0.8% recovery in December thanks to a seasonal rise in exports to the US and Europe.
METI's latest report shows that buoyant pre-Christmas sales of electronic toys and games to the US are one of the few bright spots for Japan's beleaguered manufacturers.
But independent analysts say even this relatively gloomy government forecast may be over optimistic, citing a sustained decline in domestic demand this year and persistently high inventory levels in Japanese factories.
High levels of inventory, or stock, at a time when demand for manufactured goods is slowing, make companies less likely to place new orders for raw materials.
This reduces the chance of a broad-based industrial recovery.
Gloomy outlook
The chances of a recovery in consumer demand look even slimmer.
On Wednesday, the Japanese government said retail sales, which account for two thirds of gross domestic product, fell by 4.9% in the year to September.
The Bank of Japan has cut the cost of borrowing close to zero in a bid to stimulate the flagging economy, but with unemployment at a record 5% and rising, this hasn't lured consumers back into the shops.
The latest industrial output figures follow a decision earlier this week by rating agency Standard & Poor's to downgrade Japan's credit rating to a level below that of many multinational corporations.