Unexpected drop in Japan's industrial production

Japanese car production for export fell last month. Photo / Thinkstock
Japanese car production for export fell last month. Photo / Thinkstock

Japan's industrial production unexpectedly declined and South Korean manufacturers' confidence dropped to a three-year low as global demand weakened.

Production fell 0.1 per cent in June from May, when it slid 3.4 per cent, Japan's Trade Ministry said yesterday.

The median estimate of 29 economists surveyed by Bloomberg News was for a 1.5 per cent gain.

The South Korean confidence index for August was at 70 from 81 for July, the central bank said.

Weakness in the US, European and Asian economies is fuelling speculation that extra stimulus may be introduced in coming months by central banks including the Federal Reserve and the Bank of Japan.

European Central Bank president Mario Draghi's success in taming the eurozone's debt crisis may be the key to the global outlook after he pledged to do whatever it takes to preserve the common currency.

"It's increasingly likely that the Fed and ECB will ease further by September and I think the BOJ will follow," said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo and a former central bank official. In Japan, "it's a very likely scenario that the Government will implement a supplementary budget this autumn and the BOJ will expand the asset-purchase programme again".

Korean data followed a slide in a measure of the nation's consumer confidence.

US Fed policymakers hold a two-day meeting this week.

Draghi is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before ECB policymakers convene on Friday.

He was to meet with US Treasury Secretary Timothy Geithner in Frankfurt yesterday and is also attempting to win over Bundesbank president Jens Weidmann, a critic of ECB bond purchases.

In Japan, the yen's strength is undermining a recovery that has been supported by government spending on earthquake reconstruction and incentives to buy fuel-efficient cars.

The yen rose more than 6 per cent against the dollar since mid-March, hurting exporters such as Canon and Nintendo.

Japan's government downgraded its assessment of industrial production for the first time since September, saying output is in "a flat trend".

Production of cars for overseas fell last month, it said.

Last week, government reports showed that consumer prices unexpectedly declined and retail sales rose less than economists forecast.

- Bloomberg

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