Drop in exports slows Japan's economy

Associated Press

TOKYO — Japan's ailing economy has taken a turn for the worse as falling demand for exports is forcing factories to cut production, the government said yesterday.

A month after warning for the first time in more than five years that the economy was "weakening," the Cabinet Office report for May said conditions are "weakening further."

It was the fourth straight month that the Japanese government downgraded its assessment of the world's second-largest economy, which is mired in its deepest slump in decades.

The report cautioned that Japan is still on track toward a "self-sustaining recovery" and investors seemed to take the otherwise gloomy language in stride.

Feeling the effects of the U.S. economic slowdown, Japanese manufacturers have been slashing production in a battle to keep inventories from piling up. The United States is the largest export market for Japanese cars, electronics and other manufactured goods.

The report said rising inventories may force companies further to scale back output and investment, kicking away one of the few pillars supporting the economy.

Highlighting the bleak prospects for investment, core machinery orders fell 3.6 percent in March from the previous month and plunged 7.0 percent in the January-March period.

Consumers' reluctance to spend also remains a heavy drag on the economy. Spending has been discouraged by near-record unemployment and bankruptcies.

Reflecting that trend, imports have stopped growing, the report said — a revision from last month's assessment that it was "slowing."

Newly elected Prime Minister Junichiro Koizumi has promised to put the economy at the top of his administration's policy agenda.

The Japanese government is forecasting 1.7 percent growth for the fiscal year through March 2002.