Japan economy reels from disaster impact

Japan's factory output posted a record tumble in March after a devastating earthquake and tsunami crippled supply chains and forced the nation's biggest companies to shutter plants, data showed Thursday.

In other data illustrating the emerging impact of the March 11 disasters on the world's third-biggest economy, household spending also fell by a record amount as cautious consumers held off on purchases of non-essential goods.

Freight containers are seen having been dumped in a stream by the devastating tsunami which impacted Kashima in Ibaraki Prefecture.

Many see Japan sliding into temporary recession after the disasters left around 26,000 dead or missing and devastated infrastructure and manufacturing facilities, plunging the nation into its worst crisis since World War II.

"The full impact of the disaster is still unclear and hard to predict," said Hideki Matsumura, an analyst at Japan Research Institute, adding that the continued threat of power shortages going into the summer added to economic uncertainty.

A 15.3 percent dive in Japan's industrial production in March on-month was the sharpest since records began in 1953, the government said Thursday.

The fall was worse than the previous record drop of 8.6 percent in February 2009 as the financial crisis pushed Japan into its worst post-war recession, illustrating the severity of the impact of the March earthquake on production.

Economists surveyed by Dow Jones Newswires and the Nikkei expected industrial output to fall 10.8 percent in March after a 1.8 percent rise in February.

Japan's biggest recorded quake and the tsunami it unleashed shattered supply chains and crippled electricity-generating facilities, including a nuclear power plant at the centre of an ongoing atomic emergency.

Many key component manufacturers are based in the worst-hit regions and suffered damage to their facilities from the 9.0 magnitude earthquake or inundated by the giant wave that followed.

The Ministry of Economy, Trade and Industry said falls in the production of transport equipment and general machinery drove the decline.

Naoki Murakami, chief economist at Monex securities, noted that automobile and other transport production had nearly halved "as the disaster stopped factory lines and led to the collapse of supply chains."

While the government said it expected production to increase in April and May, analysts warned that Japan's output would continue to be compromised. "Delays in parts deliveries remain quite severe. The pace of production recovery is expected to be very slow until summer," said Murakami.

In separate data, Japanese household spending plunged by 8.5 percent in March from a year earlier in the biggest drop since records began in 1964.

Although sales of water and food surged as people stockpiled immediately after the quake and the nuclear crisis at the Fukushima Daiichi plant, consumers have held off spending on areas such as entertainment and travel.

Analysts warn that this mood of voluntary self restraint will exacerbate any downturn.

The figure was much worse than a 0.2 percent fall in February and falls of less than seven percent economists had expected.

Spending by wage-earning households tumbled by 11.0 percent following a 0.7 percent drop in February, also a record fall, the ministry said.

Japan's core consumer price index fell 0.1 percent in March, matching market expectations as the nation remained mired in deflation for the 25th consecutive month.

The unemployment rate stood at 4.6 percent in March, unchanged from a month earlier, but figures from northeastern Japan hit by the March 11 disaster were excluded, the government said Thursday.


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