Japan’s Industrial Output Falls More Than Expected, Dovish Expectations Rise

“Japan’s industrial output tumbled more than forecast to the lowest level since the aftermath of the record 2011 earthquake, bolstering the case for Prime Minister Shinzo Abe to unleash large-scale stimulus.

The 1.7 percent drop in November from October exceeded all 27 forecasts in a Bloomberg News survey, a government report showed today in Tokyo. The nation also remained mired in deflation, with consumer prices excluding fresh food dropping 0.1 percent from a year before, compared with a central bank goal of 1 percent and Abe’s desired target of 2 percent.

With neighbor South Korea reporting a jump in production almost double the highest estimate among economists surveyed, Japan’s data may strengthen the new Abe administration’s determination to drive down the yen and force the Bank of Japan (8301) to add monetary stimulus. On the fiscal front, Abe has told ministries to compile emergency spending proposals by Jan. 7.

“Weakness in exports is the major drag on Japan’s economy,” said Yoshimasa Maruyama, chief economist at Itochu Corp. (8001) in Tokyo. “Given the weak state of the economy, Abe’s government may need a large-scale stimulus program to boost growth.”

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