Japan output logs record fall

---

TOKYO, Fri Dec 27 (Reuters): Japan's industrial output dived at a record pace and core consumer inflation fell faster than forecast in November, putting the shrinking economy on course for a spell of deflation next year.
The grim outlook could push the Bank of Japan to implement unorthodox monetary easing measures as it has little room left to cut interest rates after reducing them to 0.10 per cent last week.
Japan's Economics Minister Kaoru Yosano also said Tokyo would act flexibly on possible additional fiscal measures if economic conditions deteriorate further.
With much of the developed world in recession and emerging economies quickly losing steam, many analysts think Japan's export-oriented economy could go through one of its sharpest contractions ever this quarter and next.
"Production is falling off a cliff," said Naoki Iizuka, senior economist at Mizuho Securities.
"The Japanese economy is unlikely to bottom out until October-December next year as output is expected to remain very weak until then."
Industrial output fell 8.1 per cent in November from a month earlier, posting the largest fall on record and exceeding a median market forecast for a 6.8 per cent drop.
Even after that tumble, output is expected to fall a further 8.0 per cent in December and 2.1 per cent in January, data from the Ministry of Economy, Trade and Industry showed Friday.
That means industrial output, a key harbinger of the nation's overall economic performance, may log its largest quarterly fall on record in the three months to December, after three straight quarters of decline.
The yen dipped against the dollar, but the Nikkei share average rose 1.1 per cent as investors picked up recently battered stocks.
A tumble in global demand and the recent rise of the yen have pummeled Japanese exporters, forcing Toyota Motor Corp, the world's most profitable car maker until recently, to forecast its first consolidated operating loss and warn of an unprecedented emergency.
"Production is falling like Niagara Falls. What's going on now is beyond what Toyota and Sony had ever imagined. They just can't have a plan for the future now," said Mitsuru Saito, chief economist at Tokai Tokyo Securities.
Yosano told Reuters in an interview that the government would be flexible about more spending to shore up the economy.
Tokyo has pledged measures totaling 75 trillion yen, of which 12 trillion yen is earmarked for actual spending.
As exports crumble at an unprecedented pace, Japanese companies are not only halting factory lines but also scrambling to slash jobs, which in turn is hurting domestic consumption.
Annual core consumer inflation slowed sharply to 1.0 per cent in November from 1.9 per cent in October, largely due to the drop in oil prices, and a little bit below a median market forecast of 1.1 per cent.
Excluding food and energy, prices were flat, after having finally started to rise in June this year.
Core inflation could even fall into negative territory as early as January, economists at Nomura Securities said, due to weakening conditions.
To support the rapidly worsening economy, the BOJ cut interest rates to 0.1 per cent last week and adopted measures such as increasing its outright buying of Japanese government bonds and temporarily purchasing commercial paper outright.
With little room left for further cuts in the policy target rate, the BOJ could start quantitative easing, in the same vein as the Federal Reserve, which has been expanding its balance sheet quickly, said Saito of Tokai Tokyo Securities.
BOJ board member Hidetoshi Kamezaki said Thursday that the central bank should consider ways to influence longer-term interest rates and also do research on buying risk assets such as corporate bonds and shares.
Other data on Friday showed the jobs-to-applicants ratio for November fell to 0.76, matching a low hit in February 2004, from 0.80 in October.
The reading, which fell short of a median market forecast of 0.77, means 76 jobs were available per 100 applicants.
The number of new job offers fell 23.7 per cent in November from a year earlier after an 18.1 per cent drop in October.
Japanese wage earners' total cash earnings fell 1.9 per cent in November from a year earlier, the first drop in nearly a year.