By Hideyuki Sano
TOKYO (Reuters) - Japan's industrial output posted a record fall in November as companies halted factory lines to deal with a sudden plunge in global demand, underscoring fears that the world's No.2 economy could face a prolonged recession.
Core consumer inflation slowed sharply on a plunge in oil prices, raising the spectre of a return to deflation and prompting the view the Bank of Japan may be forced to adopt more steps to help corporate finance, with little room left to cut interest rates, which are already near zero.
With much of the developed world in recession and emerging economies quickly losing steam, many economists 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 percent in November from a month earlier, posting the largest fall on record and exceeding a median market forecast for a 6.8 percent drop.
The outlook is also grim.
Manufacturers' output, the core component of production, is expected to fall 8.0 percent in December and 2.1 percent in January, data from the Ministry of Economy, Trade and Industry showed on Friday.
That means industrial output may mark its largest quarterly fall on record in the three months to December, after three straight quarters of decline. METI cut its assessment on industrial production, saying it was falling rapidly.
The yen, Japanese government bond futures and share prices were little changed in thin trading, with many overseas players away on holiday.
A tumble in global demand and the recent rise of the yen are pummeling Japanese exporters, forcing Toyota Motor Corp, the world's most profitable car maker until recently, to forecast its first consolidated operating loss.
Annual core consumer inflation sharply slowed to 1.0 percent in November from 1.9 percent in October, due largely to falls in oil prices and largely in line with a median market forecast of 1.1 percent.
Rapidly slowing annual consumer inflation reaffirmed the view that Japan could eventually return to deflation, maybe in the middle of next year.
"In light of growing deflation fears in the global economy, the Bank of Japan could soon be pressured into implementing policy steps that could be defined as quantitative easing," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"One possible and feasible measure would be raising the amount of JGBs it buys from the market," he added.
To help support the nation's rapidly worsening economy, the BOJ cut interest rates to 0.1 percent last week and adopted measures such as increasing its outright buying of Japanese government bonds and temporarily purchasing commercial paper outright.
As exports crumble at an unprecedented pace, Japanese companies are slashing jobs, pushing the availability of jobs to its worst level in nearly five years.
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 percent in November from a year earlier after an 18.1 percent drop in October.
(Additional reporting by Leika Kihara; Editing by Hugh Lawson)
