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April factory output in Japan is down, which is a concerning indication for the economy

Image: Reuters Berita 24 English - In April, Japan's factories reported a steep drop in output as a result of China's COVID-19 lockd...

Image: Reuters

Berita 24 English - In April, Japan's factories reported a steep drop in output as a result of China's COVID-19 lockdowns and wider supply disruptions, clouding the outlook for the trade-dependent economy.

Separate statistics showed that retail sales increased for the first time in nearly a year as the government loosened epidemic restrictions, despite wider price hikes that threaten to dampen demand.

Official data released on Tuesday revealed that factory output fell 1.3 percent in April compared to the previous month, owing to steep drops in the production of products such as electronic parts and manufacturing gear.

It was the first drop in three months, and it was far less than the 0.2 percent drop predicted by economists in a Reuters survey.

The news comes only one day after Toyota Motor Corp., the world's largest carmaker by sales, missed its global production target for April, with output falling by more than 9% year on year.

Toyota's output dropped last month after the Japanese automaker slashed its global production plan for June and hinted at lowering its full-year output target of 9.7 million vehicles on Friday.

"In the short term, Japan's production is expected to remain stalled while global supply chain disruptions persist," said Kazuma Kishikawa, an economist at Daiwa Institute of Research.

Even if Shanghai's severe COVID-19 lockdown expires on Wednesday, Kishikawa said, a full recovery of goods movement from China will likely take awhile, putting a damper on Japanese productivity.

He continued, "Logistics will not be restored in a day."

While activity in Japan's services sector is recovering up as the pandemic fades, supply interruptions and rising material prices due by Russia's war in Ukraine have put pressure on the country's industrial sector.

In a note, Tom Learmouth, Japan economist at Capital Economics, stated, "The soft activity figures for April imply that the Q2 rebound may disappoint, but it's worth emphasizing that they don't tell us anything about the recovery in the service sector."

Manufacturers polled by the Ministry of Economy, Trade and Industry (METI) predicted a 4.8 percent increase in output in May, followed by an 8.9 percent increase in June.

While enterprises' production expectations have been significantly more unduly optimistic than usual since supply bottlenecks began to take a toll, Learmouth added, output would be on track for a solid rebound this quarter if those forecasts are realized.

Separate data revealed that retail sales increased by 2.9 percent in April compared to the same month last year, the largest increase since May 2021. This exceeded the median market projection of a 2.6 percent increase.

In April, the unemployment rate fell to 2.5 percent from 2.6 percent the previous month, marking a more than two-year low.

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