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Factory output in Japan fell in April, indicating that the economy is under stress

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 missed its global production target for April, with output down more than 9% year on year as China's lockdowns exacerbated a components scarcity.

On Friday, the world's largest carmaker by sales dropped its worldwide production forecast for June and hinted at the prospect of cutting its full-year output forecast of 9.7 million vehicles.

"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.


Due to output delays, high-tech chip and part shortages could harm consumption and exports of durable products like autos, according to Takeshi Minami, chief economist of Norinchukin Research Institute.

"However, expenditure on services is forecast to outstrip that, implying that growth would likely be positive in the second quarter," Minami added.

A technical recession, defined as two consecutive quarters of economic contraction, is improbable, he argues.

According to a Reuters poll conducted in May, analysts anticipate GDP to increase at an annualized rate of 4.5 percent this quarter, with the majority expecting a return to pre-pandemic levels. This would be in addition to the drop recorded in the first quarter.

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 such estimates indicate to a robust rebound this quarter, Learmouth noted that, even with supply difficulties, firms' output plans have been "overly optimistic," foreshadowing potential downside.

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.

The government also reported that a consumer confidence index rose for the second month in a row in May, while the unemployment rate fell to a more than two-year low of 2.5 percent in April, down from 2.6 percent the previous month.

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