Strong Asian demand drives Japanese recovery



Japanese manufacturers are hopeful of an economic recovery early next year on the back of strong Asian demand. Factory output rose for the first time in November in the last six months and manufacturers expect to further boost their production in the coming months and maintain the momentum.

However, strengthening of the local currency has been a lingering problem for the export dependent economy. To alleviate fears of a strong Yen that can potentially stunt the economy from expanding, the Finance Ministry has assured the domestic industry that it will intervene whenever the Yen gains.

The Ministry of Economy, Trade and industry said on Tuesday that output rose by 1% in November for the first time in six months, matching market forecasts.

Domestic manufacturers are optimistic of maintaining the trend and predict 3.4 percent growth in December and 3.7 percent in January.

The industry outlook reinforces Bank of Japan’s forecast that export will pick up to the Asian economies and help the economy stabilise. The Central Bank hopes that it need to not ease policy any further.

Yoshiki Shinke – Senior Economist at Dai-ichi Life Research Institute said: “The headline figure was in line with expectations, but forecasts for December and January came in quite strong” adding that “Since today’s data shows that the downward risks to the economy have eased, we now have a smaller chance of the BOJ easing its policy further as long as there are no wild market fluctuations caused by some overseas factors”.

Demand from Asia and the Middle East mainly drove increased output of automobiles, machinery and electronic parts.

Anticipating stronger domestic demand, automakers have started building inventories. This indicates that the worst may be over for carmakers after sales had dived in September when the government withdrew subsidies on low-emission cars.

Masamichi Adachi – Senior Economist at JP Morgan Securities at Japan said: “We have already got some positive news from Asian neighbours for October and November. This is confirmation that Japan is benefiting from the recovery of the Asian economies”.

The Ministry sounded cautiously optimistic since the recovery has been slow compared to steep decline recorded earlier in the year.

Overall, economists predict positive growth from next year and expect contraction in the last quarter of 2010. However, the rebound may not be spectacular since domestic consumer sentiment still remains week since the country witnessed deflation this year after decades of growth.

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