Industrial production fell in June by the most since March 2011, when the Great East Japan Earthquake and tsunami struck, as automakers cut output after a gain the previous month.
Output declined 3.3 percent in June from May, the Ministry of Economy, Trade and Industry said Tuesday, marking a steeper fall than any economist forecast in a Bloomberg survey in which the median of 29 estimates was for a 1.5 percent drop.
In May, output climbed the most since December 2011. Production slid 4.8 percent in June from a year earlier.
Tuesday’s report adds to the challenges facing Prime Minister Shinzo Abe, who must decide whether to proceed with the consumption tax increase even though it could slow down a rebound in the economy. Weakening production would undermine his calls for higher wages to bolster his reflation efforts after temporary boosts from monetary and fiscal stimulus.
“The fall in production is likely temporary and will be offset by the expected July increase,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former Bank of Japan official. “I don’t think there has been a change in the underlying trend for industrial output.”
Abe’s policies have weakened the yen about 12 percent against the dollar this year, bolstering exporter profits and pushing up stocks.
Domestic car production fell in June, with Toyota Motor Corp.’s output dropping 9.9 percent from a year earlier, Honda Motor Co.’s falling 35 percent and Nissan Motor Co.’s down 7.9 percent.
Separate figures Tuesday showed that household spending last month slipped 0.4 percent from a year earlier despite expectations of a rise after earlier figures showed consumer prices went up for the first time in more than a year.
However, factory data werebrighter on a quarterly basis, with output expanding 1.4 percent between April and June, while a producer survey released with the figures was also optimistic.
Firms expect factory output to rise 6.5 percent in July and then slip 0.9 percent in August, it said.
“Industrial production shows signs of picking up at a moderate pace,” METI said in a statement.
Also upbeat were fresh jobs data that showed the unemployment rate fell to 3.9 percent in June, the lowest point in more than four years.
The decline — from 4.1 percent in May — translated into the best reading since 3.8 percent posted in October 2008, according to the internal affairs ministry.
“A little sunlight is entering the job market, where recovery tends to lag behind those in other economic areas,” Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, was quoted as telling Dow Jones Newswires.
“On average, (factory) output remains on an upward trend, helped by brisk external demand and the weaker yen. So you don’t have to worry too much about the declines in a single month,” he added.
Fresh from the victory for his Liberal Democratic Party in the July 21 Upper House election, Abe has acknowledged that despite signs of improvement, many Japanese have yet to feel a boost from his policies. He has vowed to press ahead with deeper and more fundamental economic reforms intended to help restore Japan’s competitiveness.
A key factor will be whether companies begin to invest more and raise wages, which would help drive a recovery in consumer demand that accounts for most of the economic growth.
While sales are up by double digits at the toniest department stores, overall retail sales fell in June from the month before, with surveys showing consumer spending is slowing, Marcel Thieliant, an economist for Capital Economics, said Monday.
“Looking ahead, there are a number of reasons to doubt that the recent strong run of consumer spending can continue,” he said.
“With inflation now rising, income growth has to pick up as well for households to maintain their spending power,” he said. “The overwhelming majority of households views inflation as negative, and may rein in spending in response.”