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Japan's industrial output tumbled a seasonally adjusted 6.2 percent in February as exports remained strained on falling demand, raising concerns that the world's third-largest economy may be heading into another recession, the government said on Wednesday.
The 6.2 percent slump on the heels of a 3.7 percent rise a month earlier, while largely falling in line with median market expectations, brings a brisk halt to production expansion logged in January, the first time output in Japan posted growth in three months, as both international and domestic demand for Japan-made goods has waned, with subsiding orders commensurately affecting a downturn in the nation's production.
According to the Ministry of Economy, Trade and Industry, the index of output at factories and mines stood at 93.6 against the base of 100 in 2010, with the ministry's preliminary report also showing that production, shipments and inventories had all decreased in the recording period.
The trade ministry, opted, however, to maintain its basic assessment of production, stating that output is fluctuating indecisively, and despite predictions for an uptick in output in the coming months, the latest figures have led some economists to believe that the overall production landscape is pointing to the increasing possibility that the economy is in risk of contracting again this quarter, which would mean that Japan would enter a technical recession, after posting two straight quarters of shrinking GDP.
February's output slump marks the biggest drop since 2011, when Japan's economy was reeling from the devastating earthquake and tsunami, which pummeled supply chains, with the latest data showing that, as well as an overall 1.5 percent on year drop in output, some vital industrial sectors' falling output contributed to the hefty drop last month.
Specifically, the ministry said that transport equipment, electronic parts and devices, general-purpose, production and business oriented machinery, were the biggest industries contributing to the decline, with shipments logging a 4.6 percent drop from the previous month, marking the first drop in two months, and weighty 1.8 percent on year decline.
Inventories shed 0.1 percent from the previous month, the ministry also said, marking a second straight month of decline and a marking 0.9 percent drop on year, although the inventory ratio edged 0.5 percent higher from January for the first rise in two months, and was up 0.6 percent from the previous year.
With the Bank of Japan in its latest assessment of the economy here downgrading its view stating that "Japan's economy has continued its moderate recovery trend," and explaining that "exports and production have been sluggish due mainly to the effects of the slowdown in emerging economies," after it decided to plunge its interest rate into negative territory at the end of January following an economic contraction in the last quarter triggered by waning consumption and stifled exports, pressure has been mounting on Japanese Prime Minister Shinzo Abe to account for questions levied at him that "Abenomics" -- the leader's rescue policy for the economy -- has failed.
Should the economy enter a recession, it would mark the sixth quarterly contraction and the second recession since Abe retook office in December 2012, following an aggressive campaign and numerous policy pledges to kickstart the economy and beat decades of deflation, and could erode public faith ahead of, at least one, key election this year.
A further recession ahead of a planned sales tax hike, as economists here have attested, will see consumption, which accounts for 60 percent of Japan's economy, further strained, as inflation remaining flat, negligible wage increases, and a less-than-stellar employment market, will ensure that private consumption and household spending remains abstemious.
The yen's comparative firmness, in addition, and recent market volatility has also contributed to falling business confidence, which is also impacting the central bank's lofty 2 percent inflation goals, and, of late, leading global economists have urged Abe to hold off on a second planned sales tax hike from 8 to 10 percent slated for 2017, that would likely throw the economy into another recession, as was the case after the first hike, which was initially postponed and introduced as Abe shocked markets and called a surprise snap election two years ahead of schedule in 2014.
Despite meeting with renown economists such as Nobel laureates Paul Krugman and Joseph Stiglitz, who both delineated as to exactly why Abe should delay the tax hike, the Japanese leader, following parliament's approval Tuesday of the government's 96.7 trillion yen (850 billion U.S. dollar) fiscal 2016 budget, said the hike is necessary to underpin Japan's welfare system and bolster sinking market confidence from the international community.
Abe said, however, that he has no plans to postpone the already delayed tax hike, and once again maintained he has no plans to dissolve the lower house of parliament and call a snap election, that would, along with the upcoming upper house election, theoretically mean a double election.
"There is no change to the tax hike plan next year unless there are situations like the Lehman shock or a massive earthquake," Abe was quoted as saying, despite a number of political and economy watchers believing that a delayed hike and a snap election is certainly on the cards, as the prime minister looks to repackage his failed "Abenomics" economic policy blend and resell it to the electorate as he eyes consolidating his party's power in both houses, and achieving a super-majority so as to engineer controversial war-linked constitutional amendments by way of a public referendum.
With the central bank stating that both production and exports were expected to remain "sluggish" for the time being, with risks to the economic outlook here connected to both emerging and commodity-exporting economies, responses to financial markets by any change in monetary policy by the U.S. Federal Reserve, Europe' s ongoing debt crisis, as well as geopolitical concerns, leading economists believe GDP will shrink in the current quarter following a contraction at an annual rate of 0.3 percent in October-December, marking the third recession under Abe and supporting expectations for a snap election.
