A Decline in Japan's July Factory Output

04 Sep, 2023

A decline in Japan's July Factory Output

In July, Japan's factory output declined by 2.0% compared to the previous month, a worse outcome than the market's projected 1.4% drop. This decline follows a 2.4% growth in June. The production of cars increased by 0.6% due to improved supply chain conditions for automakers, such as Toyota and Honda, which have extensive supplier networks and influence on other Japanese manufacturers.

On the other hand, the output of electronic parts and devices decreased by 5.1%, while production machinery saw a 4.8% decline, contributing to the overall decrease in industrial output. These soft factory output figures were accompanied by lackluster July trade data, as Japan's exports contracted for the first time in over two years, primarily due to weakened global demand for light oil and chip-making equipment.

According to a survey conducted by the industry ministry, manufacturers anticipate a 2.6% increase in their output for August and a 2.4% rise for September. However, it's worth noting that these forecasts tend to be more optimistic than the actual outcomes.

In other economic news, Japanese retail sales showed strength in July, expanding by 6.8% compared to the same month the previous year. This exceeded the market's median forecast of a 5.4% gain and marked the 17th consecutive month of expansion since March 2022. The growth can be attributed to Japan's economic reopening and increased tourism following the COVID-19 pandemic.

Compared to the previous month, retail sales in July grew by 2.1%, rebounding from a 0.6% decline in June. Despite these positive retail sales figures, Japan's economy, which is the world's third-largest, is expected to contract by an annualized 1.2% in the July-September period, according to a Reuters poll. This follows a robust 6.0% growth in April-June.