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Japan's factory output rebounds as conditions improve

    Car manufacturing unit Car production was hit badly due to a shortfall of parts following the earthquake and tsunami 
    Japan's factory output rose at a faster-than-expected pace in May as the economy continued to recover from March's earthquake and tsunami.
    Japan's industrial output jumped by 5.7% in May, compared with the previous month, the latest government data showed.
    The twin disasters had damaged factories and caused disruption to the country's supply chain.
    This is the second successive month that industrial output rose in Japan.
    "As supply chains recover from the damage caused by the March earthquake, output is showing a strong recovery, mainly in cars," said Yuichi Kodama, of Meiji Yasuda Life Insurance.
    'Downside risk'
    Longer-term, power constraints are a downside risk to the economy”
    Yoshiki Shinke Daiichi Life Research Institute
    Some of the biggest Japanese manufacturers had to suspend or curb production after the earthquake and tsunami, due to a shortage of parts and electricity supply.
    While an improvement in the supply chain has eased the parts shortage, power cuts still remain a big concern for manufacturers, not least because of peak consumption during the summer months.
    "The prospect of power shortages in the summer is making companies cautious about the outlook," said Mr Kodama.
    Analysts also warned that if a solution to the power crisis is not found quickly, it may have an adverse affect on the overall economy.
    "Longer-term, power constraints are a downside risk to the economy as more companies may decide to shift their production overseas, which would weigh on Japan's potential growth rate," said Yoshiki Shinke, of Daiichi Life Research Institute.
    Back on track One of the sectors worst hit by the twin disasters was Japanese car manufacturing.
    A shortage of parts coupled with power supply constraints saw leading manufacturers like Toyota and Honda suspend production at their factories.
    However, the latest production numbers show that the pace of decline at Japan's car manufacturers is slowing down.
    On Tuesday, Toyota reported that its domestic production in May fell by 54.4%, compared with the same month last year. Last month it reported a 74.5% drop.
    Honda said its Japanese factories produced 53.4% fewer cars in May. Its output had plunged by 81% in the previous month.
    Meanwhile, Nissan said production at its domestic factories actually increased by 0.8% in May, compared with a 48.7% drop in the previous month.
    Analysts said that the recovery in the sector had been faster than they had expected.
    "Carmakers have been able to recover very quickly from the loss of output after the earthquake," said Shuji Tonouchi, of UFJ Morgan Stanley Securities.

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Japan's factory output rebounds as conditions improve

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