TOKYO: Japan’s industrial production rebounded at a pace that was weaker than expected, ahead of a closely watched Bank of Japan (BoJ) policy meeting.
Factory output increased 0.2% in September from a month earlier, the Industry Ministry said yesterday, missing economist expectations of a 2.5% gain.
Automakers supported the rise, while production machinery output dragged on the overall figures. The reading fell 4.6% compared with a year earlier. Output in the July to September quarter retreated 1.3% from the previous period.
Separate Industry Ministry data showed retail sales marginally decreased for the first time in three months in September, slipping 0.1% from August. Sales were still up 5.8% from the previous year.
The weaker-than-expected output data offer fresh evidence to BoJ governor Kazuo Ueda that the nascent economic recovery remains patchy, justifying continuing monetary stimulus.
Most economists are expecting no major changes to policy, though many flagged the risk of some kind of tweak.
“Looking at today’s production data, I think the economy could contract in the third quarter following strong results in the previous period,” said Mari Iwashita, chief market economist at Daiwa Securities Co.
“Downside risks remain in overseas economies, including the situation in the Middle East.”
The disappointing figures come as Japan faces the risk that external demand may cool in light of international disruptions ranging from the Israel-Hamas conflict to the simmering geopolitical rivalry between the United States and China, which could generate more official and unofficial trade barriers.
Economist Taro Kimura said Japan’s surprisingly weak industrial output in September, which capped a quarterly decline, supports the view that gross domestic product shrank in the third quarter.
“Production falls in volatile categories such as machinery and aircraft parts dragged down last month’s overall results and offset the boost to car manufacturing from healing supply chains.”
Global commerce is expected to grow in 2023 at less than half the pace predicted six months ago, according to the World Trade Organisation.
Amid the uncertainty, Japan’s government is developing an economic stimulus package to protect households and businesses from persistent inflation.
The package may include a number of measures, from the extension of energy subsidies to possible income tax cuts.
Prime Minister Fumio Kishida said last Thursday he plans to enact a temporary income tax reduction worth 40,000 yen per person and provide an additional 70,000 yen to low-income families and yesterday the premier vowed to recharge economic growth enough that the tax help can be limited to a one-off step.
In addition to setting policy, the BoJ is set to update its quarterly economic outlook report.
It’s expected to revise higher its projection for the key inflation gauge for the current and next financial years.
Still, the bank is likely to keep its price outlook for the financial year 2025 unchanged at around 1.6%, a projection that would imply the 2% stable inflation target hasn’t been achieved.
In more positive news, Labour Ministry data showed the job market slightly tightening, with the unemployment rate inching down to 2.6%.
The jobs-to-applicant ratio was unchanged at 1.29, meaning there were 129 jobs offered in September for every 100 applicants.
A tight job market is needed to set the stage for higher wages, a crucial component in the positive growth cycle both Ueda and Prime Minister Fumio Kishida are aiming to achieve.
Rengo, the country’s largest trade union federation, demanded that companies raise wages by 5% or more next year, building on this year’s historic gains.
Taro said the incremental tightening in Japan’s labour market in September is a small win for the BoJ, which wants to see brisk wage growth push consumer prices higher.
“A decline in labour market participants seeking work and stronger hiring nudged the jobless rate down.” — Bloomberg
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