Japan’s Production May Signal Stimulus-Extension Need (bloomberg.com)

July 29 (Bloomberg) -- Japanese industrial production probably grew at the slowest pace in more than a year last quarter, adding pressure on the government to extend consumer incentives as export growth cools.

Factory output rose 0.2 percent in June from May, according to the median estimate of 26 economists surveyed by Bloomberg News ahead of a Trade Ministry report to be released in Tokyo tomorrow. That would cap the smallest quarterly gain since production fell in the first three months of 2009.

Following through with government plans to end subsidies for purchases of energy-efficient vehicles in September may deepen a manufacturing slowdown that is under way as growth weakens in Japan’s biggest markets. Economic Minister Satoshi Arai and Trade Minister Masayuki Naoshima last week said the government hasn’t decided whether to extend the enticements.

“Japan’s production has maintained a surprisingly robust expansion up to now and its deceleration is unavoidable,” said Kenji Yumoto, director at the Japan Research Institute in Tokyo. “Extending the car-purchase incentives could be an option.”

Companies surveyed by the Trade Ministry last month said they planned to expand output by 0.4 percent in June. Should that be realized, production for the quarter would increase 2 percent, the slowest pace since the first quarter of 2009.

Automakers are already preparing to scale back in anticipation of an end to the stimulus program.

Production Cuts

Nissan Motor Co. plans to cut production in Japan by about 20 percent in October and subsequent months from September’s planned level, company spokesman Mitsuru Yonekawa said yesterday. Toyota Motor Corp. will also pare output by 20 percent in October, the Yomiuri newspaper reported on July 21.

A government report today showed retail sales improved in June after tumbling the previous month. Spending advanced 0.4 percent on a monthly basis, after a 2 percent slide in May that was the biggest drop since 2005.

Bank of Japan board member Hidetoshi Kamezaki said yesterday that household spending is likely to weaken once the incentives to buy cars ends and a separate program to spur purchases of home appliances finishes at the end of the year.

“A recoil of consumption of durable goods is expected,” he said in a speech in Sapporo, northern Japan. He said the recovery may slow in the fourth quarter. Household spending makes up more than half of the world’s second-largest economy...

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