Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Japan's factory output falls for first time in four months as firms battle rising costs

Published 10/30/2022, 07:55 PM
Updated 10/30/2022, 10:36 PM
© Reuters. FILE PHOTO: A worker walks near a factory at the Keihin industrial zone in Kawasaki, Japan February 28, 2017. REUTERS/Issei Kato

By Kantaro Komiya and Sakura Murakami

TOKYO (Reuters) -Japan's factory output fell in September for the first time in four months as manufacturers grappled with rising raw materials costs and global economic slowdown, and is likely to fall again next month before picking up in November, the government said.

In a brighter sign for the world's third-largest economy, retail sales grew for a seventh consecutive month, raising hope for a sustainable boost in consumption after the easing of COVID-19-related inbound border controls earlier in October.

"While private consumption will continue its recovery from an easing COVID-19 situation and economic reopening, production may stall as worsening overseas economies hit Japanese exports," said Masato Koike, senior economist at Dai-ichi Life Research Institute.

Factory output fell a seasonally adjusted 1.6% in September from a month earlier, government data showed on Monday, deeper than economists' median forecast of a 1.0% decline. That marked the first month-on-month fall in four months and followed a 2.7% rise in August.

A 12.4% decline in auto-related production - the sector's steepest fall in eight months - drove down the overall index.

Automakers and suppliers have struggled with a shortage of semiconductors, exacerbated by COVID-19 lockdown measures in China where many Japanese firms have factories or suppliers. Reuters reported last week that Toyota Motor (NYSE:TM) Corp has told suppliers to lower production targets for 2022.

"While auto production posted a large fall, a surge in the electronics sector's inventory ratio was also conspicuous, indicating a semiconductor demand slowdown," said Shintaro Inagaki, senior market economist at Mizuho Securities.

But automakers are disproportionately affected by the chip supply crunch, making their production outlook uncertain, Inagaki said.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to fall another 0.4% in October and rise 0.8% in November.

COVID-19-induced supply bottlenecks are easing, but demand-side risk from global economic slowdown could drag on output, a METI official said at a media briefing, adding manufacturers' confidence in the business environment remains weak.

A Reuters corporate survey also showed souring sentiment earlier this month, with inflation among businesses' major concerns.

While the annual consumer inflation rate was at 3.0% in September, the prices firms charged each other rose 9.7% in the same month.

Inflationary pressure in import-reliant Japan has been amplified by a prolonged slide in the yen, which hit a 32-year-low against the U.S. dollar this month.

"We haven't heard much from manufacturers that the weak yen is positive per se for their production," the METI official said based on its factory output survey. "Rather, with rising procurement costs on the weak yen, coupled with (higher) energy prices, some firms have voiced concerns for their business conditions."

On Friday, the government announced a 39 trillion yen ($264 billion) stimulus package as an inflation countermeasure funded by an extra budget of 29.6 trillion yen, while the Bank of Japan decided to keep its ultra-loose monetary easing policy unchanged to support the economy, even with the risk of aggravating yen weakness.

Separate data showed retail sales rose 4.5% year-on-year in September, extending a rebound since March when the government ended domestic COVID-19 containment measures. Analysts had expected 4.1% growth.

On a seasonally adjusted month-on-month basis, retail sales grew 1.1% in September, rising for a third month.

A further bounce is widely expected in coming months after Japan eased border controls on Oct. 11 for foreign tourists.

"But we may not see a full return to pre-pandemic levels" soon, since Chinese tourists still face strict border controls back home, said Dai-ichi's Koike.

© Reuters. FILE PHOTO: A man works in a factory at the Keihin industrial zone in Kawasaki, Japan, September 14, 2016. REUTERS/Toru Hanai

Economists polled by Reuters last week expected Japan's economy to expand an annualised 2.0% in October-December, slightly better than their previous estimate.

($1 = 147.6500 yen)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.