Forex

TOKYO (Thomson Financial) - Japan's industrial output fell a seasonally adjusted 2.0 percent in January from December, the first fall in two months, as electronic device makers and automakers reduced production, according to preliminary data released Thursday.

The fall in factory output was much bigger than the consensus forecast in a poll by the Nikkei newspaper of a decline of 0.6 percent.

Output rose 1.4 percent in December from November.

The industrial output index reached an all-time high of 112.2 in October.

Industrial output was 2.5 percent higher in January than a year before. It was 0.8 percent higher in December than a year before.

The Ministry of Economy, Trade and Industry predicted that industrial output will fall by 2.9 percent in February from January but will rise by 2.8 percent in March from February.

The ministry said that if these projections are met, industrial output will decline 2.5 percent in the first quarter of 2008, the first fall in four quarters.

In the fourth quarter of 2007 industrial output rose 1.3 percent from the third, rising for the third straight quarter.

But the ministry is maintaining its view that industrial output is now flat, after it downgraded its assessment for the first time in seven months in December.

'There are risk factors such as the US economy, consumer spending in Japan and surging crude oil prices,' an official of the ministry said.

Output of the electronic device sector fell 3.5 percent in January from December, hit by a 12.6 percent drop in output of large-matrix liquid crystal displays.

But the ministry regards the downturn as a blip, saying it is due to a difference in the timing of the placement of new orders by buyers.

The inventory ratio index for the electronic devices sector, which the Bank of Japan uses as a gauge in assessing progress in information technology inventory adjustments, fell 2.8 percent in January, showing an underlying improvement in the balance of production and inventory.

Output of the transportation equipment sector, which includes automakers, dropped 3.7 percent, the biggest fall since September 2008.

'But we believe that output in the transportation sector is maintaining a rising trend,' the official said. 'This sector has a tendency to have a lower production volume in January than other months.'

Production of cars with engine displacement of less than 660cc fell 2.6 percent and production of cars with 1000-2000cc engines fell 7.0 percent. Production of cars with engines of 2000cc or bigger declined by 4.8 percent.

Some makers of construction machinery and materials reduced their production in response to dwindling housing construction in Japan and falling housing demand in the US. Housing starts have been falling at a double-digit pace since July because of the introduction of tighter building regulations.

Output of construction cranes fell 8.8 percent and output of excavators declined by 7.0 percent. Output of aluminium sashes for buildings fell 5.7 percent.

While the pace of decline in housing starts has slowed recently owing to a recovery in starts of owner-occupied housing, starts of larger buildings, including condominiums, has continued to dwindle.

(1 US dollar = 106.32 yen)