Japan’s factory output in biggest fall ever

Japan’s industrial output fell by record levels in March as disruptions in the supply chain continued to hit production.

Factory output fell by 15.3%, the biggest ever decline in production in the country.

The previous record was an 8.6% fall in February 2009 in the wake of the global financial crisis.

Following the figures, the Bank of Japan left its interest rates unchanged in a bid to boost growth.

The bank has kept the cost of borrowing at a historic low of between zero to 0.1% as the country struggles to recover from the aftermath of the devastation caused by last month’s earthquake and tsunami.

Infrastructure issues

The biggest impact of the twin disasters has been on Japan’s infrastructure and supply chain.

That has resulted in Japanese manufacturers being hit by a shortage of parts and key components.

There has also been a shortfall in electricity supply in some parts due to the damage caused to power stations by the quake and tsunami.

The combination of those two factors has seen production being suspended or curbed at factories of some of Japan’s biggest manufacturers.

Analysts say the situation is unlikely to return to normal any time soon.

“Industrial output may not return to where it was before the earthquake until October-December,” said Kiichi Murashima of Citigroup Global Markets.

“Companies have forecast a rise in output in the April and May, but I doubt companies can accurately forecast how soon supply chains will be restored,” he added.

Emergency brakes

While the damage caused by the quake and tsunami to Japan’s economy and infrastructure has been widespread, the country’s automakers have been amongst the hardest hit.

Car manufacturers do not carry huge inventory of parts with them.

The industry relies heavily on the efficient functioning of its supply chain to ensure that parts are delivered just-in-time to be used on the assembly lines.

As a result, the disruption caused to Japan’s supply chain has brought the country’s auto sector to an emergency halt.

Toyota Motors and Honda have reported that their output fell by 63% in March, while Mazda’s production declined by 54%.

Analysts said that a recovery in Japanese industrial output will depend on how fast the automotive sector can rebound.

“Heavily hit automakers are still only functioning at 50% of their capacity and curtailed production looks set to continue for a few more months,” said Mari Iwashita, of SMBC Nikko Securities.

Toyota Motors has already warned that its production levels will return to normal only by the end of the year.
Source: BBC