Japan’s industrial production took a hit in November as factory output declined. This decline has raised concerns about the outlook for Japan’s export-reliant economy. According to data from the Ministry of Economy, Trade and Industry (METI), industrial production fell 0.9% in November compared to the previous month. While this reading was better than the median market forecast of a 1.6% drop, it still signifies a decline in output.
One sector that contributed significantly to this decline in industrial output was motor vehicle production. In November, motor vehicle production fell 2.5% compared to the prior month. The manufacturing of small cars and engines experienced slowdowns, which impacted overall output. Additionally, output of electrical machinery and information and communication electronics equipment fell 3.5% due to sluggish demand in semiconductor and integrated-circuit testing equipment.
Manufacturers in Japan have expressed mixed expectations for the upcoming months. According to a survey conducted by the industry ministry, they anticipate an increase of 6.0% in seasonally adjusted output for December. However, they also forecast a decline of 7.2% in January. These projections highlight the uncertain nature of Japan’s industrial production, making it difficult to predict future trends.
METI maintained its assessment of industrial output as “seesawing,” emphasizing the precariousness of the situation. The ministry official stated, “We’ll continue to monitor the impact of the global economic downturn and rising prices.” This sentiment reflects the concerns about external factors affecting Japan’s economy, such as the global economic slowdown and increasing prices.
The recent safety scandal involving Toyota Motor’s small car-unit Daihatsu is expected to further impact Japan’s industrial output. The production halt at Daihatsu, which will continue until the end of the next month, will contribute to downward pressure on output. This halt could potentially disrupt the steady recovery seen in automobile-related production this year.
Economists, like Kota Suzuki from Daiwa Securities, have expressed caution about the risk of production cuts in the near term. While automobile-related production has recovered steadily due to easing supply constraints, the situation remains fragile. Any unexpected disruptions, such as the current production halt at Daihatsu, could have significant consequences for Japan’s industrial output.
Despite the concerns surrounding Japan’s factory output, there is a silver lining in the form of retail sales. Separate data shows that retail sales expanded by 5.3% in November compared to the same period last year. This growth was roughly in line with market forecasts and marks the 21st consecutive month of expansion since March 2022. Furthermore, compared to the previous month, retail sales grew by 1.0% in November, following a decline in October.
While retail sales provide some hope for Japan’s economy, the decline in factory output raises concerns about the overall growth trajectory. The uncertain outlook, along with external factors and potential disruptions to production, creates a challenging environment. Monitoring the impact of global economic conditions and rising prices will be crucial in addressing the current decline in Japan’s industrial production and ensuring a more stable future for the economy.
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