Japan’s Factory Output Falls More Than Expected in July

Introduction

Japan’s factory output fell more than expected in July, signaling a rocky start to the second half of the year for manufacturers as worries mount over growth in China and the global economy. Industrial output fell 2.0% in July from the previous month, data from the Ministry of Economy, Trade and Industry (METI) showed on Thursday.

Reasons for the Decline

• Output in many industries, including the machinery for production industry, declined due to a decrease in domestic and overseas orders.
• Output of electronic parts and devices fell 5.1%, while that of production machinery decreased 4.8%, driving the overall decline.
• Production machinery for semiconductor manufacturing equipment fell by 16.4%.

Positive Outlook for Car Production

Production of cars rose 0.6% thanks to easing supply chain constraints for automakers. Carmakers like Toyota and Honda have a huge influence over other Japanese manufacturers through their vast supplier networks.

Forecasts for August and September

Manufacturers surveyed by the industry ministry expect their output to rise 2.6% in August and increase 2.4% in September, although the forecasts typically tend to be more optimistic than actual outcomes.

Impact of Global Economic Downturn

Property concerns in China are partially affecting the market for building materials such as steel and plastics in Japan. The impact of the global economic downturn and price hikes will continue to be monitored.

Retail Sales Growth

Japanese retail sales expanded 6.8% in July from a year earlier, marking the 17th consecutive month of expansion since March 2022. Compared with the previous month, retail sales grew 2.1% in July.

Economic Outlook

Japan’s economy is expected to contract an annualized 1.2% in July-September, according to the latest Reuters poll, after rosy 6.0% growth in April-June.

Reporting by Satoshi Sugiyama; Writing by Kantaro Komiya; Editing by Chang-Ran Kim, Shri Navaratnam and Sam Holmes