Japan’s industrial output recovered further last month after a record drop in March due to the earthquake and tsunami.

Disruptions caused by the twin disasters resulted in carmakers being forced to halt production as a result of parts shortages.

However, it looks as if the situation continues to improve after output rose by 0.8% last month compared with July, figures from the Finance Ministry showed today.

August represented the fifth consecutive monthly increase but was lower than analysts had expected.

However, the outlook remains uncertain as the yen continues to strengthen, and threatens the recovery of the world’s third largest economy.

A strong yen makes Japanese exports more expensive to overseas buyers.

The currency has been appreciating for some time as global investors see it as a safe haven at a time of economic uncertainty.

However, it has implications and it is forcing manufacturers to consider relocating and some have even suggested moving their operations overseas.

The Government announced it will continue to monitor foreign exchange traders’ positions in order to deter currency speculation – which is the latest intervention by the Government as it seeks to weaken the currency.

In related news this week, Japan’s retail sales slumped last month, which has led many analysts to question the strength of the recovery.

Retail sales fell 2.7% in August on an annual basis – much worse than the 0.6% expected by analysts.

In other news, Japan’s core consumer price index (CPI) rose 0.2% in August on an annual basis, and was up 0.1% compared with July, official data showed today.

Analysts had been expecting an annual rise of 0.1%.

In the meantime, the country’s unemployment rate fell to 4.3% from July’s 4.7% – forecasts were for the rate to remain unchanged.

In comparison, unemployment in the US stands at 9.1%, the UK’s rate is 7.9%, while in the euro zone, it is 10%.

Official figures today revealed Japan’s exports rose in August for the first time in six months – suggesting the world’s third largest economy is continuing its recovery from the devastating earthquake and tsunami which struck in March.

According to the Ministry of Finance, exports were 2.8% higher last month on an annual basis but this was much less than the 8% rise expected by analysts.

The figures suggest the strong yen continues to hurt Japan’s manufacturers – it is currently hovering around 76.30 to the US dollar – dangerously close to its post-war high of 75.95 yen seen last month.

The yen has been appreciating for some time as global investors see it as a safe haven at a time of economic uncertainty.

However, it has implications and it is forcing manufacturers to consider relocating and some have even suggested moving their operations overseas.

Exports helped the economy recover from recession earlier than its counterparts more than two years ago but the twin disasters disrupted supply chains and forced some of Japan’s largest exporters to halt production.

In the meantime, imports surged 19.2% on an annual basis, due to hikes in oil prices.

As a result, the economy posted a huge trade deficit of 775.3 billion yen – the biggest since records began in 1979.

Last week, the Cabinet Office revealed the Japanese economy performed worse than originally thought in the April to June period.

Gross Domestic Product (GDP) contracted by 2.1% on an annual basis in the three-month period, compared with an initial estimate of 1.3%.

The economy is currently in recession and has now contracted for three consecutive quarters.

Japan lost its place as the world’s second largest economy to China last year and it faces several headwinds including years of deflation and a mountain of debt.

Debt currently stands at almost twice the country’s annual economic output and is the highest of any industrialised nation.

The Cabinet Office has today revealed the world’s third largest economy performed worse than originally thought in the April to June period.

Gross Domestic Product (GDP) contracted by 2.1% on an annual basis in the three-month period, compared with an initial estimate of 1.3%.

The fall was attributed to a cut back on spending by companies amid concerns about a slowing global economy and a strong yen.

Earlier this week, Japanese Finance Minister, Jun Azumi, said he will discuss the threat of the strong yen at the G7 meeting in Marseille, France today.

Meanwhile, figures released today revealed overall investment by businesses fell by 0.9% in the quarter, against 0.2% rise estimated previously.

The economy is currently in recession and has now contracted for three consecutive quarters.

The economy continues to recover from the devastating earthquake and tsunami which struck in March.

A strong yen continues to hurt Japanese manufacturers. Furthermore, the twin disasters disrupted supply chains and forced some of Japan’s largest exporters to halt production.

Exports helped the economy recover from recession earlier than its counterparts two years ago but recent figures have shown exports are slowing.

Yesterday, the Organisation for Economic Cooperation and Development (OECD) said Japan could see economic growth of 4.1% in quarter three but will see zero growth in the final quarter.

However, despite today’s poor figures, which were in line with expectations, economists are optimistic about the future prospects.

Government stimulus spending is expected to boost the recovery efforts in north-eastern Japan, while consumer spending will lead to expansion in the next quarter.

Japan lost its place as the world’s second largest economy to China last year and it faces several headwinds including years of deflation and a mountain of debt.

Debt currently stands at almost twice the country’s annual economic output and is the highest of any industrialised nation.

The Bank of England’s Monetary Policy Committee (MPC) has today elected to keep UK interest rates on hold at the historically low level of 0.5%, as widely expected.

Interest rates have now been at this low level since March 2009 – when the economy was in the midst of recession.

Recent figures show the economy appears to be faltering so it was understood that the central bank is reluctant at this stage to lift interest rates as the recovery is losing momentum.

Some economists believe the bank will not lift rates again until 2013.

However, the Bank has come under pressure lately to lift interest rates to combat stubbornly high inflation – which is currently running at more than double the 2% target.

Inflation is forecast to reach 5% later this year.

Last month, policymakers Martin Weale and Spencer Dale dropped their call for higher interest rates and joined their fellow Committee members by opting to keep rates low to stimulate the recovery.

Meanwhile, a recent slew of weak data also points to low interest rates for the longer-term but some analysts believe the Bank of England should consider a fresh round of quantitative easing (QE) if weak economic growth continues – a scheme designed to boost the economy.

However, today the bank did not announce any fresh new measures with regard to its QE programme but it is believed the MPC may be reluctant to re-introduce its QE programme with inflation running so high.

Furthermore, it is not evident whether purchasing Government bonds would be successful as yields on most securities are hovering at all-time lows.

Earlier this week, Chancellor George Osborne admitted the economy is weak and that the recovery would be choppy.

However, despite the sluggish economic recovery, the Government is sticking with its deficit reduction plan.

Some have suggested the harsh plan could push the economy back into recession.
However, Mr Osborne continues to defend the cuts and he has deemed them necessary and fair in order to bring the budget deficit down.

Details of how the Committee voted will be published on 21 September.