TOKYO (Reuters) – Japan's economy showed more signs of recovery from the deadly March earthquake and tsunami with last month's industrial output inching up and manufacturers planning to crank up production further in May and June, bringing it near pre-disaster levels.
Even as the upbeat outlook spurred some talk of a possible "V shaped" recovery for the world's third-largest economy and room for the central bank to hold off with any more policy easing, rating agency Moody's Investors Service flagged its concerns over the weak policy response to the crisis.
Moody's moved one step closer to downgrading the country's debt ratings, putting it on review for a possible downgrade and highlighting its concerns over the policy response to "faltering economic growth prospects."
Data on Tuesday showed output rose 1.0 percent in April, short of economists' median 2.8 percent forecast, but firms' plans for the following two months suggested a brisk recovery from a record 15.5 percent slump in the immediate aftermath of the March 11 disaster.
Manufacturers predicted an 8.0 percent rise in their May output and a similar 7.7 percent increase in June, Ministry of Economy, Trade and Industry data showed on Tuesday.
However, optimism about longer-term outlook was tempered by lingering fears of power outages during the summer peak period and concerns that political infighting may delay reconstruction spending.
"From May a V-shaped recovery may start and it (output) may keep rising through July and August at a similar pace to what is forecast for May and June," said Kyohei Morita, chief economist at Barclays Capital Japan.
He said reduced electricity supplies might dampen output in July-September, but the economy should regain steam later on, provided that extra reconstruction spending kicks in by then.
"One risk is what politicians do in June. If they end up holding a snap election, that will delay the second extra budget," Morita said.
Prime Minister Naoto Kan faces a no-confidence vote as soon as this week and even though most political analysts think Kan will survive, the looming face-off bodes ill for cooperation with opposition needed to get spending through a divided parliament.
The 9.0 magnitude quake and a deadly tsunami that lashed Japan's northeast left around 24,000 dead or presumed dead and triggered the world's worst nuclear crisis in 25 years, knocking Japan back into a second recession in less than three years.
The immediate blow from the disaster proved more violent than many had initially thought, shaving 0.9 percent off the first-quarter economic output.
Most economists expect the economy to shrink further in the second quarter before gradually starting to recover some time in the second half of the year with the help of Japan's biggest reconstruction effort since the post-World War Two era.
The Bank of Japan eased monetary policy just days after the March earthquake, but it has stood pat on policy since then on the view that the economy will resume a moderate recovery before the end of the year. It has signaled, however, that it stands ready to loosen policy further if the damage from the quake proves bigger than expected.
The latest data and news from individual companies, however suggested manufacturers were making good progress in restoring supply networks torn apart by the disaster and managing their energy needs in the face of possible electricity shortages.
A separate private Purchasing Managers' survey for May confirmed the improving outlook with manufacturing activity rebounding from a two-year low and expanding for the first time in three months this month.
Economists pointed to a still subdued consumer demand as another reason for caution about the economy's longer-term prospects.
Underscoring lingering weakness in consumption, household spending fell 3.0 percent in April from a year earlier, after a record 8.5 percent annual drop seen the previous month and against a median forecast for a 2.9 percent annual decline, government data showed. Separate data showed wage earnings fell in the year to April 1.4 percent, the sharpest decline since 2009.
The jobless rate inched up to 4.7 percent from 4.6 percent seen in March, as expected, while the availability of jobs fell to 0.61 from 0.63 in March, below 0.62 expected by economists, meaning that there were more than three jobs available for every five job seekers.
(Additional reporting by Kaori Kaneko; Writing by Tomasz Janowski; Editing by Edmund Klamann and Vidya Ranganathan)