Japan’s factory output slumps, economic signs worrying | Business & Economics

Factory output fell 1.3% in April as the Chinese blockade and the war in Ukraine weighed on manufacturers.

Factory output in Japan fell sharply last month as China’s draconian “zero-coronavirus” policy and supply chain lockdowns hampered manufacturing and dented growth prospects in the world’s third-largest economy.

Factory production fell 1.3 percent in April from the previous month, government data showed on Tuesday, as manufacturing of products including electronic parts and machinery fell sharply.

The weak data marked the first decline in three months, a day after Toyota Motor Corp missed its global production target for April after output fell more than 9 percent from a year earlier.

Toyota, the world’s largest automaker by sales, last week cut its global production target for June while signalling it may cut production for the full year.

Shigeruto Nagai, head of Japan economics at Oxford Economics, told Al Jazeera that he believes falling domestic demand, especially private consumption, poses a greater risk to Japan’s economy than a slowdown in industrial activity.

“While we are now seeing an impressive recovery driven by pent-up demand, the power of consumption will be severely limited by rising inflation and stagnant wage growth leading to a sharp drop in real household income,” Nagai said.

“A weaker yen is also clearly bad for households and consumption, which should lead the way in the coming recovery after the coronavirus.”

Separate data on retail sales and unemployment showed healthy gains despite a slowdown in industrial activity.

Retail sales recorded their biggest gain in nearly a year as consumers increased spending after the government eased COVID-19 restrictions, Although rising inflation threatens demand. Retail sales rose 2.9% in April, the biggest gain since May 2021 and well ahead of market expectations. The unemployment rate was 2.5%, the lowest level in more than two years.

“We should focus on wage growth as a result of a tightening labor market, which is the key measure of sustainable inflation trends the BOJ has been looking for,” ING economists said in a note.

While Japan’s services sector has rebounded from the COVID-19 pandemic, manufacturing faces disruptions and rising material prices due to China’s ongoing lockdown and Russia’s war in Ukraine.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expect output to return to growth in May, rising 4.8%, followed by an 8.9% rise in June.

“I think today’s slowdown in industrial production is temporary, mainly reflecting the disruption to supply chains and production activities from China’s COVID-related lockdowns,” Nagai said.

“Japan’s exports and production will continue to be impacted by the lockdown for the next few months, but will regain momentum thereafter. We have limited concerns about the outlook for Japanese manufacturing activity amid strong demand for high-end capital goods and automobiles. A weaker yen will also help exports.”

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