Japan factory output hits 3-year low on weak domestic demand, export slump

TOKYO (REUTERS) - Japan's industrial output slid in May at the fastest rate in three months to its lowest level since June 2013, highlighting concerns about falling exports and weak consumer spending.

May's 2.3 per cent fall in industrial output considerably exceeded the median estimate for a 0.1 per cent decline forecast in a Reuters poll.

"The decline in industrial output is directly related to the decline in exports," said Hidenobu Tokuda, senior economist at Mizuho Research Institute. "Another factor is the slow recovery in domestic consumer spending. The government should consider some measures to improve domestic demand."

Japan's government plans to announce more fiscal stimulus spending this autumn to revive Prime Minister Shinzo Abe's economic agenda. Strengthening domestic demand has become even more urgent as gains in the yen further threaten exports.

Output fell in May due to declines in the production of chemicals, cosmetics, construction equipment and semiconductors, data from the Ministry of Economy, Trade and Industry showed.

Manufacturers surveyed by the ministry expect output to rise 1.7 per cent in June and increase 1.3 per cent in July.

Exports fell at the fastest pace in four months in May on supply chain disruptions from an earthquake and slow growth in emerging markets, data earlier this month showed.

The Bank of Japan's closely-watched tankan business sentiment survey due on Friday is forecast to show confidence fell to the lowest in three years in April-June, even though the poll was taken before Britain voted on June 23 to leave the European Union.

Ongoing Brexit-related disruptions could further undermine output and trade.

Separate data due on Friday is forecast to show core consumer prices fell at the fastest pace since the BOJ began its quantitative easing programme in April 2013, further vindicating the argument that efforts by the government and the BOJ to kindle inflation have failed.