Japan factory output slides, sales tax looms

  • Economy
  • Monday, 31 Mar 2014

Workers are at an assembly line of the Panasonic Kobe laptop computer factory in Kobe, Western Japan in this file photo. The Ministry of Economy, Trade and Industry (METI) said industrial output fell 2.3% in February from the previous month when in was 3.8% - EPA Photo.

TOKYO: Japan's factory output unexpectedly fell in February at the fastest pace in eight months in a possible sign that the benefits from last-minute demand before an impending sales tax hike may have run their course.

The data adds to growing concerns of a stumble in the economy, and comes on the heels of a separate survey showing manufacturing activity expanded at a slower pace in March.

The Ministry of Economy, Trade and Industry (METI) said industrial output fell 2.3% in February from the previous month, compared with a 0.3% rise expected by economists in a Reuters poll.

The weak result followed a solid 3.8% gain in January, which was driven by brisk production of cars and household appliances.

Manufacturers surveyed by the ministry expect output to rise 0.9% in March but decrease 0.6% in April, the METI data showed, suggesting a lack of confidence in domestic demand.

The data comes a day before the national sales tax rises to 8% from 5% on Tuesday.

Analysts are also looking out for the Bank of Japan's key tankan survey due on Tuesday, which may offer clues on any impacts of the sales tax hike on business sentiment in the three months to March and their outlook in the following quarter.

"Companies are curbing production to keep inventories low because they are worried about demand after the sales tax hike," said Norio Miyagawa, senior economist at Mizuho Securities Research & Consulting Co.

"This suggests the economy may not rebound quickly, and the burden may fall on the BOJ as the government has already committed to fiscal stimulus spending."

Auto-makers, manufacturers of mobile phones, personal computers and heavy machinery led declines in industrial production, the data showed.

Unusually cold weather and snowstorms also weighed on output, Miyagawa said.

The METI stuck to its assessment that industrial output is picking up, and in a press briefing noted that the weakness in February was largely a one-off event due to bad weather.

A survey of manufacturing released earlier in the day also showed weather-related impacts. The Markit/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 53.9 in March from 55.5 in February, keeping above the 50 threshold that separates expansion from contraction for a 13th consecutive month.

Analysts believe factory output is maintaining a rising trend, underpinned by firm domestic conditions and a pickup in external demand and reinforcing expectations that the economy can weather the sales tax rise.

Last-minute demand for big-ticket items such as cars and housing has peaked, with growth in housing starts seen decelerating sharply in February.

Still, rising sales of household appliances and non-durables such as foods and clothing before the tax hike are expected to fuel growth in the current quarter, analysts say.

The Japanese economy is expected to contract in the April-June quarter as consumer spending dips after the sales tax hike takes effect, before rebounding in July-September. – Reuters 

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Japan , economy , factory output , February , down , sales tax


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