Japan's factory output slips 1% in Nov

Construction works at a shopping district in Tokyo. Some analysts warn that the economy may suffer a contraction in the October-December period if household spending remains weak.
Construction works at a shopping district in Tokyo. Some analysts warn that the economy may suffer a contraction in the October-December period if household spending remains weak.PHOTO: REUTERS

Weak production data and slump in retail sales dampen recovery prospects

TOKYO • Japan's factory output fell for the first time in three months in November and retail sales slumped, suggesting that a clear recovery in the world's third-largest economy will be delayed until early next year.

While manufacturers expect to increase output in coming months, the weak data casts doubt on the Bank of Japan's (BOJ) view that an expected pick-up in exports and consumption will help jump-start growth and accelerate inflation towards its 2 per cent target.

Industrial output fell 1 per cent in November from the previous month, more than a median market forecast for a 0.6 per cent decline, data from the Trade Ministry showed yesterday. Separate data showed that retail sales fell 1 per cent last month from a year earlier, more than a median forecast for a 0.6 per cent drop, as warmer weather hurt sales of winter clothing.

"We're finally seeing signs of pick-up in exports, but the economy has yet to make a clear turnaround," said Mr Takeshi Minami, chief economist at Norinchukin Research Institute. "There's a risk that consumption will remain sluggish and prevent economic growth from picking up," he said.

Japan's economy narrowly dodged recession in July-September and analysts expect only modest growth in the current quarter, as consumption and exports lack steam.

Some analysts warn that the economy may suffer a contraction in October-December if household spending remains weak.

Mr Taro Saito, senior economist at NLI Research Institute, expects consumption in the current quarter to have risen by less than the 0.4 per cent quarter-on-quarter increase in July-September.

Wary of soft growth, the government plans nearly US$800 billion (S$1.1 trillion) in record budget spending for the fiscal year that will begin on April 1. The BOJ has signalled readiness to expand stimulus if risks threaten Japan's recovery prospects. The central bank fine-tuned its stimulus programme on Dec 18 to ensure that it can keep up or even accelerate its money-printing.

While sluggish emerging market demand dims the export outlook, analysts expect output to gradually increase early next year as automakers ramp up production of new models.

Manufacturers surveyed by the Trade Ministry expect to increase production by 0.9 per cent this month and raise it by 6 per cent next month.

Many analysts share the BOJ's view that output is bottoming out, though some doubt manufacturers will boost production as much as they now project. "There may be expectations that factory output will improve early next year. But it's uncertain whether the forecasts can be realised," said Dai-ichi Life Research Institute chief economist Yoshiki Shinke.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 29, 2015, with the headline 'Japan's factory output slips 1% in Nov'. Print Edition | Subscribe