TOKYO: Japan’s factory output contracted at the fastest pace in eight months in January as declining overseas demand takes a heavy toll on key industries such as auto and semiconductor equipment.
In contrast, retail sales posted their fastest growth in nearly two years, separate data showed, which highlighted the divergent paths between soft manufacturing and robust service sector activity.
“Weak export-bound production and a recovery in consumption continue to be the two main focuses of Japan’s economy,” said Atsushi Takeda, chief economist at the Itochu Economic Research Institute.
He expects the new Bank of Japan (BoJ) leadership will be slow to tweak monetary policy amid the uncertainty.
Factory output fell 4.6% in January from a month earlier on a seasonally adjusted basis, government data showed yesterday.
The contraction was much larger than economists’ median forecast of a 2.6% decline and followed an upwardly revised 0.3% increase in December.
It marked the fastest decrease since May 2022’s 7.5% fall, when China’s Covid-19 lockdown disrupted Japanese manufacturers’ supply chains.
Output of auto products slumped 10.1%, dragging the overall index lower, while manufacturing of items such as production machinery and electronic parts dropped 13.5% and 4.2%, respectively.
Semiconductor-making equipment was down 26.8% as chip firms slowed their capital expenditure, while passenger cars fell 7.4%, due in part to a component supply bottleneck caused by heavy snow across Japan, an Economy, Trade and Industry (Meti) Ministry official told reporters.
The United States-led export control of chip equipment against China “has not had an immediate effect” on Japanese industrial production in January, the official added.
“The magnitude of the slowdown was partly due to this year’s early start to the Lunar New Year, which began only 22 days after the turn of the calendar year,” said Darren Tay, Japan economist at Capital Economics, adding that output should rebound in February.
Manufacturers surveyed by Meti expect output to rise 8% in February and gain 0.7% in March, the data also showed, although the official poll tends to report an optimistic outlook.
Separate data showed Japanese retail sales rose 6.3% in January from a year earlier, beating a median market forecast for a 4% gain and posting an 11th consecutive month of expansion.
It also logged the fastest growth since May 2021.
Despite the production cuts, retail sales of autos rose 19.3% year-on-year, suggesting strong pent-up demand among domestic consumers caused by delivery delays.
Compared with the previous month, retail sales expanded 1.9% in January, following a 1.1% rise in December, the data showed.
According to a Reuters poll, Japan’s economy, the world’s third largest, is expected to grow by an annualised 1.4% in January to March, following a weaker-than-expected 0.6% growth in the fourth quarter of 2022.
Kazuo Ueda, an academic nominated to become the BoJ’s next governor in April, has stressed the need to maintain the current ultra-low interest rates.
He said this would be to support the fragile economy while signalling the chance of tweaking the central bank’s long-term yield control scheme.
“As Ueda has said, Japan won’t be able to escape deflation until economic recovery is achieved,” said Itochu’s Takeda.
“As a result, he would not rush policy changes that could cause a significant shock to the economy, such as a sharp rise in interest rates.” — Reuters