Japanese industrial production fell a record 9.6 percent in December, while core annual inflation almost evaporated, reinforcing expectations of a record economic contraction as the global financial crisis worsens.
Unemployment hit a three-year high, household spending slid and manufacturers saw no quick turnaround in the outlook for industry - the main driver of the world's second-biggest economy - as inventories hit record highs despite factory closures and lay-offs to cut production. The subsiding inflation and worsening economic conditions are stoking deflation worries, as in other major economies, which may prompt more central bank steps to support the staggering economy and unfreeze credit markets that are starving key companies of cash.
Economists said fourth-quarter GDP figures, due out in February, would likely show Japan's economy shrinking at an annual rate of around 10 percent - the sharpest fall since the first oil crisis in 1974 and bigger than any during the Japanese banking crisis 10 years ago. Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities, said early 2009 also looked bleak.
Japan's industrial production fell a record 9.6 percent in December, after an 8.5 percent drop in November, as companies have been forced to cut output as export demand for their cars, electronics and machinery evaporates. The sharp global slowdown has prompted Japanese chip makers to seek mergers to survive, while big carmakers like Honda Motor Co and Toyota Motor Corp slash earnings forecasts and shutter plants.
Factories forecast a further slide in production of 9.1 percent in January and another 4.7 percent fall in February. Deepening woes are prompting companies to slash not just output but jobs. Japan's jobless rate rose to 4.4 percent in December while the availability of jobs sank to a five-year low.
Annual core consumer inflation slowed to 0.2 percent from 1.0 percent in November as oil prices slide, after hitting a decade high 2.4 percent. Energy prices fell 6.8 percent in December from a year earlier, a government official said.