The depth of the downturn in Japan, the world's second-largest economy, emerged yesterday with industrial production showing a record 9.6 per cent decline last month and unemployment up by 0.5 per cent to a three-year high of 4.4 per cent.

Output fell at its fastest pace since records began in 1953 and it was considerably worse than the 9 per cent consensus forecasts expected by the market and up from a previous record of 8.5 per cent a month earlier. It is particularly worrying for a country that relies heavily on global exports of cars, electronics and machinery.

At the same time, the threat of deflation is looming over Japan as new data showed that the consumer price index rose by only 0.2 per cent in December, compared with a 1 per cent increase in November. Deflation held the Japanese economy in a slump for nearly a decade until 2006.

The figures come as factories across Japan are shedding jobs and reducing operating times, with large companies such as Toyota and Honda being forced to suspend plants for weeks at a time. The Japanese electronics industry eliminated 27,000 jobs yesterday with NEC anouncing plans to cut 20,000 jobs worldwide and Hitachi said that it would shed 7,000 jobs after warning of a £5 billion loss this year.

Brokers at Tokyo Mitsubishi said that of the three major economic releases yesterday, the 9.6 per cent plunge in industrial production was the surest confirmation of the severe turmoil identified last week by Bank of Japan analysts.

Kaoru Yosano, the Economics Minister, said: “I am extremely worried about industrial production. Probably such a sharp decline was never experienced and is likely to continue.”

Economists said that jobs figures, which showed unemployment rising 0.5 per cent in December to a three-year high of 4.4 per cent, made a mockery of a promise this week by Taro Aso, the Prime Minister, that Japan would be the first major economy to emerge from the global turmoil.

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