TOKYO • Japan's factory output posted the biggest decline in a year in January in a sign that slowing Chinese demand and the Sino-US trade war were taking a toll on the country's manufacturing sector, a major driver of economic growth.
The 3.7 per cent fall in output, which closely tracks broader economic growth, was bigger than the median market forecast for a 2.5 per cent drop and marked the third straight month of contraction, the data showed yesterday.
The world's third-largest economy faces a bumpy road ahead with manufacturers surveyed by the Ministry of Economy, Trade and Industry in the report expecting output to rebound 5 per cent in February but decrease 1.6 per cent in March.
The ministry cut its assessment of output saying it is "stalling". Previously, it was described as picking up gradually.
Japanese policymakers worry that sluggish output may drag on economic growth as exporters curb shipments and manufacturers halt production due to a sharp drop in demand from China in the face of the China-United States trade war.
US President Donald Trump said this week he may soon sign a deal to end a trade war with Chinese President Xi Jinping if their countries can bridge remaining differences.
Mr Trump has delayed a hike in US tariffs on US$200 billion (S$269 billion) of Chinese goods and extended his March 1 deadline for a deal. His decision avoided another escalation in a trade war between the world's two largest economies that has cost both countries billions of dollars and roiled global markets.
Data released last week showed Japan's exports logged their worst drop in more than two years in January as China-bound shipments tumbled, fuelling concerns about the outlook for the export-reliant Japanese economy.
Other data showed that overseas orders for machinery fell the most in more than a decade in December, and business sentiment was at a two-year low.
Adding to the broader gloom, retail sales grew just 0.6 per cent year on year in January, slowing sharply from a 1.3 per cent gain in the previous month.
On the seasonally-adjusted basis, retail sales dropped 2.3 per cent month-on-month in January, a worrying sign for private consumption, which accounts for about 60 per cent of the economy.
Japan's economy rebounded in the fourth quarter as business and consumer spending recovered from the slump caused by natural disasters.