Japan’s factory output slips in April, signaling economic pressure

A worker rides a bicycle near a factory in the Keihin Industrial Zone in Kawasaki, Japan, on February 28, 2017. REUTERS/Issei Kato

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  • April production fell 1.3% mom, well below expectations
  • Manufacturers see output increase in May and June
  • Retail sales rise more than expected in April

TOKYO, May 31 (Reuters) – Japanese factory output fell sharply in April as China’s COVID-19 lockdown and wider supply disruptions hit manufacturers hard, clouding the outlook for a trade-reliant economy.

Separate data showed retail sales posted their biggest gain in nearly a year, as consumers ramped up spending after governments eased pandemic containment measures, resisting pressure from broader price increases that could hurt demand.

Factory output fell 1.3% in April from a month earlier, official data showed on Tuesday, as output of items such as electronic parts and production machinery fell sharply.

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It was the first drop in three months and was well below the 0.2% drop expected by economists in a Reuters poll.

The data came a day after Toyota Motor Corp. (7203.T) Its output fell more than 9% year-on-year, missing April’s global production target as China’s lockdown exacerbated parts shortages.read more

The world’s largest automaker by sales on Friday already cut global production plans for June and signaled that it may reduce its full-year production plan of 9.7 million vehicles.read more

“Production in Japan is likely to remain stagnant in the near term as global supply chains continue to be disrupted,” said Kazuma Kishikawa, an economist at Daiwa Research Institute.

Even after Shanghai ended its strict COVID-19 lockdown from Wednesday, it may take time to fully resume shipments of goods from China, Kishikawa said, adding that it could weigh on Japanese output.

“Logistics will not recover in a day,” he added.

While activity in Japan’s services sector is picking up as the pandemic subsides, the country’s manufacturing sector has been pressured by supply disruptions and higher material prices caused by the Russia-Ukraine war.

Service restored?

A shortage of high-tech chips and components could hurt consumption and exports of durable goods such as cars due to output disruptions, said Takeshi Minami, chief economist at the Agriculture, Forestry and CICC Research Institute.

“But services spending is expected to exceed that, so the second quarter is likely to show positive growth,” Minami said.

He believes a technical recession, defined as two consecutive quarters of economic contraction, is unlikely.

A Reuters poll in May showed that analysts expected gross domestic product (GDP) to expand at an annualized rate of 4.5% this quarter, with most expecting a return to pre-pandemic levels. This will follow the decline in the first quarter.read more

“The weak activity data for April suggest that the rebound in the second quarter could be disappointing, but it’s worth noting that they don’t tell us anything about the recovery in the services sector,” Tom Learmouth, Japan economist at Capital Economics, said in a statement. wrote in a report.

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.

Learmouth said that while such forecasts would point to a strong rebound this quarter, the company’s production plans have been “overly optimistic” and even with supply shortages hinting at some downside.

Separate data showed that retail sales rose 2.9% in April from a year earlier, the largest increase since May 2021. This was higher than the median market forecast of 2.6% growth.

The government also said consumer confidence rose for a second straight month in May, while the unemployment rate edged down to a more than two-year low of 2.5% in April from 2.6% the previous month.

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Reporting by Daniel Leussink and Kantaro Komiya; Additional reporting by Yoshifumi Takemoto; Editing by Sam Holmes

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