Business / Economy

Japan's output drops most since 2011 as consumers spend less

Sales tax hike, fall in consumer spending result in 'ugly data'


Industrial output fell the most since the March 2011 disasters, government data showed Wednesday, highlighting the widening impact to the economy of the April 1 consumption tax increase.

Industrial output dropped 3.3 percent in June from May, the Ministry of Economy, Trade and Industry said.

The figure is more than twice the median forecast for a 1.2 percent contraction in a Bloomberg survey of 31 economists.

The manufacturing sector has cut back in response to a slump in consumer spending and a failure of exports to pick up even after an 18 percent drop in the yen last year. Honda Motor Co. and Nissan Motor Co. this week reported jumps in profit, showing how the weaker currency is contributing to earnings gains without bolstering the economy.

“Today’s data are very ugly — companies are becoming even more cautious on the outlook for the economy after the sales tax hike,” said Taro Saito, director of economic research at NLI Research Institute in Tokyo. “Japan’s economy doesn’t have a driving force, with consumer spending and exports having stalled.”

The yen has climbed about 3 percent this year after its 18 percent drop in 2013.

Production fell across most sectors, with transport equipment, which includes automobiles, dropping 3.4 percent from the previous month, and output of desktop computers, mobile phones and other communications equipment sliding 9 percent.

While manufacturers surveyed by the ministry forecast a recovery in output in the coming months, these should be treated with caution as companies tend to overestimate future production, according to a research note from economists at Capital Economics.

Output will rise 2.5 percent in July from a month earlier, and 1.1 percent in August, according to Wednesday’s data. Any recovery in production in the coming months will likely be slow, Capital Economics wrote.

Honda raised its profit forecast to the highest level in seven years earlier this week as the yen weakens and new models boost sales in emerging markets. Nissan reported a 37 percent profit jump on rising demand in China and the U.S.

A weak rebound in the economy from an estimated contraction in the second quarter could complicate Prime Minister Shinzo Abe’s plans to lift the sales levy again in 2015. Finance Minister Taro Aso said Tuesday that the administration would make a decision by the end of the year whether to raise the levy to 10 percent from 8 percent now.