According to the Ministry of Economy Trade and Industry, which unveiled the figures, production is expected to decrease again in February, by 8.3 per cent, which seems pretty reasonable if you look at the PMI (see below). If production matches forecasts for February and March, we could see a 22.5 per cent decline in output for the first three months of the year, well above the 12 per cent fall in the last quarter of 2008, amd potentially the largest ever quarterly fall in Japanese output. If this is the case Q1 GDP will be a real shocker.
The fall in industrial output is being driven by a fall in Japanese exports, which slumped by a record 45.7 per cent in January.
The February manufacting PMI showed manufacturing activity contracted for a 12th straight month in February, underscoring the fact that the depressed state of Japanese industry is likely to continue. Although the Nomura/JMMA Japan PMI edged up to a seasonally adjusted 31.6 from a record low of 29.6 in January, it remained well below the 50 threshold that separates contraction from expansion.
And if we look at the comparison between PMI and GDP to be seen in the chart below, we can see that Japan may be looking at something like a 5% quarter on quarter contraction at this point, or a 20% annualised rate of contraction.
This is much worse than the Q4 2008 contraction since gross domestic product declined at an annualised rate of 12.7 per cent.