Japan's industrial output contracted by 4.1 percent in September from August and 8.1 percent from a year earlier as automakers and steel mills cut production due to shrinking demand and antagonisms with China, according to the Ministry of Economy, Trade and Industry.
Household spending fell an average of 0.9 percent in September from a year earlier, despite a slight gain in household income. Stronger spending by Japanese households is critical to the recovery, given that private consumption accounts for almost 60 percent of Japan's total economic activity, and the outlook for exports remains bleak.
The recovery that followed Japan's March 2011 disasters has been doused by slowing global growth, and flaring tensions with China over disputed islands in the East China Sea have further crimped demand, especially for big-ticket items like cars. Slowing growth in China, meanwhile, has hit demand for industrial inputs like steel and machinery.
"Industrial production is on a downward trend," the ministry said, forecasting a further decline in October, followed by a rebound in November.Embattled Prime Minister Yoshihiko Noda convened an extraordinary session of the legislature on Monday, appealing to the opposition Liberal Democratic Party to cooperate in passing a bill authorizing bond sales to finance the growing deficit. Japan's Cabinet approved a 423 billion yen ($5.3 billion) emergency stimulus package on Friday, double the size originally expected. The government was obliged to dip into reserves to pay for the new stimulus, since its leeway to boost spending is limited by a legislative standoff preventing issuance of some 38.3 trillion yen ($480 billion) in deficit financing. As it confronts that "fiscal cliff," which could raise the country's borrowing costs, Japan already leads industrial nations with government debt amounting to more than twice the country's gross domestic product. "We still have work to do!" Noda said Monday in a speech that repeatedly reminded lawmakers of their responsibility toward future generations. Funding shortfalls threaten to affect crucial government services, he warned.