May 28 (Bloomberg) -- Japan's factory production probably fell in April for a second month as the U.S. slowdown crimped world demand and higher energy costs cut into corporate profits. Inflation stayed near a decade high, economists said.
Output declined 0.5 percent from March, when it slid 3.4 percent, the biggest drop in five years, according to the median estimate of 35 economists surveyed by Bloomberg News. The Trade Ministry will release the report on May 30 at 8:50 a.m. in Tokyo.
Record oil and commodity prices are squeezing businesses and consumers in Asia, where demand has helped Japanese exporters withstand the U.S. slump. Higher costs and fewer sales may cause profits to fall this year for the first time since 2001, prompting companies to pare spending and restrain wages.
``The global economy is slowing but commodity prices are still going up. It's really damaging,'' said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo. ``Japan's biggest market is Asia. They're big importers of commodities, so they're getting hit just like Japan.''
Analysts will look for clues about Japan's economic outlook in companies' forecasts for production in May and June. The Trade Ministry asks manufacturers about their production plans in the two months ahead. Companies said last month they expect May output to rise 3.4 percent.
``I think the projection is over-optimistic because the global environment is getting worse and worse,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo.
BOJ's Shirakawa
Bank of Japan Governor Masaaki Shirakawa said yesterday that the outlook for the world's second-largest economy is ``extremely uncertain'' because costlier oil and raw materials could squeeze companies and consumers as well as fan inflation.
Consumer-price inflation probably eased from the steepest rate in 10 years as the temporary expiry of a gasoline tax provided relief to consumers facing rising prices of bread, milk and beer.
Core prices, which exclude fresh fruit, fish and vegetables, climbed 1 percent in April from a year earlier, according to the median estimate of 35 economists surveyed. Prices rose 1.2 percent in March, the fastest pace since 1998. The statistics bureau will release the figures on May 30 at 8:30 a.m. in Tokyo.
The expiration of the gasoline tax lowered the average price of the fuel nationwide by about 17 percent in April, according to the Bank of Japan. The levy was reinstated this month, bringing regular gasoline prices to a record 160.1 yen a liter ($5.84 a gallon).
Oil Prices
``The gasoline tax temporarily dragged down core prices, but the effect of recent oil gains will defiantly appear in consumer-price data from May,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo.
Crude oil exceeded $135 a barrel for the first time last week. Japanese companies' pretax profits will fall 5 percent in the year ending March 2009, ending seven years of growth, according to the Shinko Research Institute.
Higher commodity costs aren't all bad news for Japan's exporters. They're increasing the wealth of emerging and resource-producing countries, spurring demand for Japanese goods in those markets, Governor Shirakawa said. Export growth accelerated last month as demand in emerging markets made up for a slump in shipments to the U.S., Japan's largest market.
``We're not looking for a collapse in exports. We're basically expecting them to be held up by commodity-exporting countries,'' said Lehman's Shiraishi. ``The economy's path is dependant on this balance between commodity prices and global growth. That balance isn't going in a favorable direction.''
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