Japan factory output slows in July but outlook still upbeat

TOKYO • Japan's industrial production slowed in July from June, but continued strong exports and a cheap yen mean the slowdown may be temporary.

Industrial production fell 0.8 per cent from June, when it rose by 2.2 per cent. Year-on- year production climbed 4.7 per cent.

Production is forecast to rise 6 per cent last month and drop 3.1 per cent this month.

"There's no need to change the view that production is on the recovery path because of today's slightly weaker-than-expected data," said economist Shinichiro Kobayashi at Mitsubishi UFJ Research and Consulting. The numbers show that factory output is not going to speed up so much as to lead the economy.

Buoyed by a competitive yen and a recovery in global demand, Japan is on the way to a seventh straight quarter of economic growth. Exports have increased strongly all year, though risks from North Korea have caused swings in the currency and regional markets.

A drop in household spending but a pickup in retail sales offer a mixed picture this week of Japanese domestic consumption.

Mr Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc, wrote in a note: "Industrial production is being supported by expanding domestic demand, but exports are making an especially big contribution."

Capital Economics' Marcel Thieliant said the "fall in industrial production in July points to a slowdown in Q3 even if activity recovers in August and September".

He said firms typically overstate forecasts, so figures for these two months may be lower than official estimates suggest.

Bloomberg Intelligence economist Yuki Masujima predicts output will fall in the third quarter, breaking five quarters of consecutive gains. A drop in the shipments of capital goods may also indicate downside risk for business investment.

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A version of this article appeared in the print edition of The Straits Times on September 01, 2017, with the headline 'Japan factory output slows in July but outlook still upbeat'. Print Edition | Subscribe