Japan factory output declines 1.2%

Posted on 01 October 2019

Source: Taipei Times

Japan’s industrial output shrank more than expected in August in the latest warning that the economy and its manufacturers are facing intensifying pressure amid the US-China trade dispute.

However, retail sales expanded at a faster-than-expected pace, signaling strength in private spending ahead of this month’s nationwide sales tax increase.

Industrial output fell 1.2 percent in August, Japanese government data showed, dropping at a faster pace than a median market forecast for a 0.5 percent decline and almost completely reversing July’s 1.3 percent increase.

Output was weighed by reduced production of iron and steel products, factory production equipment and vehicles, offsetting a gain in electronic parts and chemicals, the data showed.

Manufacturers surveyed by the Japanese Ministry of Economy, Trade and Industry expect output last month to rise 1.9 percent, but fall 0.5 percent this month.

Yesterday’s output data paint a bleak picture for Japan’s export-reliant economy, underlining broadening stress across the manufacturing sector from slowing global growth, although service-sector activity remains firm, as it is less at risk from weakness in global trade.

“The lack of export growth because of the global economic slowdown is having a major impact,” Shinkin Central Bank Research Institute senior economist Takumi Tsunoda said.

“The sales tax will be raised in October, so the deceleration of the economy will likely become stronger,” Tsunoda said.

The ministry cut its assessment of activity on the whole, saying it has been somewhat weakening recently.

The world’s third-largest economy has so far avoided buckling under a slowdown in overseas demand, growing for the third straight quarter in April-June, largely thanks to robust household consumption and public-works spending.

An upbeat sign in August factory output came from electronic parts production, which expanded for a second straight month, suggesting the global IT cycle could be coming closer to bottoming out, Tsunoda said.

“It usually expands for two to three years before getting worse for a year, and it has been contracting since around the fall of last year,” he said.

Separate data on Monday showed domestic demand might be stronger than thought, as retail sales climbed 2 percent in August from a year earlier, reflecting robust spending ahead of a sales tax increase to 10 percent from 8 percent today.

The reading was better than a median estimate for a 0.9 percent gain. 

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