Japan's factory output growth slumps in April, dims production prospects

By Stanley White

TOKYO (Reuters) - Japan's industrial output was well short of market expectations in April, official figures showed on Thursday, adding to fears for the outlook after the economy contracted in the first quarter.

Industrial output rose just 0.3 percent in April from the previous month, official data showed on Thursday, well below the median forecast for a 1.2 percent increase and a 1.4 percent rise in March.

Much of the slowdown was due to a 5.6 percent decline in production of electronic parts while inventories rose for a third straight month, adding to fears of weakening overseas demand.

Output is seen likely to weaken further as companies focus on lowering inventories of unsold goods, suggesting Japan's economic performance peaked last year and this year growth will be more modest.

"Production is slowing overall because companies with high inventories are cutting their output," said Asuka Sakamoto, economist at Mizuho Research Institute.

"Output will fall in the coming months, but I expect consumer spending to rebound in the second quarter, which should be supportive for economic growth. I'm not worried about a recession."

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expected output to rise 0.3 percent in May but to fall 0.8 percent in June.

Japan's economy contracted in the first quarter as weak investment, consumption and exports took their toll, with Thursday's output data and forecasts adding to concerns over how quickly the economy can return to growth.

On the positive side, production of cars and machines used in factories accelerated in April.

(Reporting by Stanley White; Editing by Eric Meijer)