Japan factory output flat in July, weak demand clouds outlook

A worker cycles in a factory at the Keihin industrial zone in Kawasaki, Japan on Feb 17, 2016.
A worker cycles in a factory at the Keihin industrial zone in Kawasaki, Japan on Feb 17, 2016. PHOTO: REUTERS

TOKYO1 (REUTERS) - Growth in Japan's industrial output ground to a halt in July after June's gains, underscoring the fragility of factory activity - a continuing challenge to policymakers grappling with a stalling economy.

The flat reading compared with economists' median estimate in a Reuters poll of a 0.8 per cent increase, following a 2.3 percent increase in June, data by the Ministry of Economy, Trade and Industry showed on Wednesday (Aug 31).

Manufacturers surveyed by the ministry expect output to rise 4.1 per cent in August and decline 0.7 per cent in September.

Sluggish factory output data is yet another setback for policymakers who have struggled to generate virtuous growth in consumption and production to lift an economy mired in nearly two decades of deflation and stagnation, without much success.

The ministry maintained its assessment on industrial output, saying production was seesawing but a pickup was seen in some parts.

Growth in Japan's economy, the world's third largest, stalled in April-June, and analysts expect any rebound in the current quarter to be modest due to weak global demand and a strong yen that undermines exports and capital expenditure.

With the economy stalling and price growth well short of the Bank of Japan's 2 per cent target, a majority of economists expect the central bank to ease policy further next month alongside a planned review of its existing stimulus programme.

The government, for its part, is set to roll out economic stimulus featuring 13.5 trillion yen (S$178.64 billion) in fiscal measures for public works and other spending to spur economic growth.