Japan factory output, retail sales slump as recovery stumbles

A Mazda automobile corporation worker assembles rotary engines at the company's main factory in Hiroshima.
A Mazda automobile corporation worker assembles rotary engines at the company's main factory in Hiroshima.PHOTO: EPA

TOKYO (REUTERS) - 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 in 2016.

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

Industrial output fell 1.0 per cent in November from the previous month, more than a median market forecast for a 0.6 percent decline, data by the trade ministry showed on Monday (Dec 28).

Separate data showed that retail sales fell 1.0 per cent in November from a year earlier, more than a median forecast for a 0.6 per cent drop, as warm 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 Takeshi Minami, chief economist at Norinchukin Research Institute. "There's a risk 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 the economy may suffer a contraction in October-December if household spending remains weak. Taro Saito, senior economist at NLI Research Institute, expects consumption in the current quarter to have risen less than a 0.4 per cent quarter-on-quarter increase in July-September.

Wary of soft growth, the government plans nearly US$800 billion (S$1.12 trillion) in record spending in the budget 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 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 in 2016 as automakers ramp up production of new models.

Manufacturers surveyed by the trade ministry expect to increase production by 0.9 per cent in December and raise it by 6.0 per cent in January.

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 realized," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.