Japan’s industrial output rose a stronger than expected 2.7 percent in September from the month before, government data showed Wednesday, signaling that demand may be starting to recover from the dent caused by April’s tax hike.
After a 1.9 percent fall in August, the seasonally adjusted gain — due partly to robust demand in autos and electronics devices — surpassed the average market forecast of a 2.2 percent increase and brought the index of output at factories and mines to 97.8 against the base of 100 in 2010, the Ministry of Economy, Trade and Industry said in a preliminary report.
METI upgraded its basic assessment of output, saying it is fluctuating between positive and negative territories. In August, it said production has “weakened.”
The Bank of Japan, in an economic assessment earlier this month after August output unexpectedly declined, said some weakness was showing, “particularly on the production side.”
The results come as the administration is about to decide whether to go ahead with a second consumption tax hike to 10 percent in October 2015 following the increase to 8 percent on April 1.
Prime Minister Shinzo Abe has said he will make a decision after assessing July-September gross domestic product data, whose preliminary figures will be released Nov. 17.
Masaki Kuwahara, an economist at Nomura Securities Co., said the administration is likely to go ahead with the tax hike, but Toru Suehiro of Mizuho Securities Co. said Japan’s economic prospects may not be strong enough to allow for an increase.
BOJ Gov. Haruhiko Kuroda has said it would be hard to deal with risks should confidence in the nation’s finances be shaken by a delay in the hike, while a finance official in Abe’s ruling party warned the economy isn’t strong enough.
There have been some signs of resilience, with retail sales climbing the most in four months in September. The economy is forecast to grow an annualized 3.4 percent in the third quarter after a 7.1 percent contraction over the three months following April’s consumption tax hike.
The Abe administration is trying to guide the economy out of 15 years of deflation while containing public debt that is mounting with rising social security costs.
The latest output reading was taken positively by economists as easing concern over the outlook for the world’s third-largest economy.
“We cannot yet judge that output has bottomed out, but the results bring hope that it will pick up” down the road, said Mitsumaru Kumagai, chief economist at the Daiwa Institute of Research.
A poll of manufacturers by the ministry showed that output is expected to edge down 0.1 percent in October but grow 1.0 percent in November.
But quarterly data show output dropped 1.9 percent in the three months through September, following a 3.8 percent plunge in the April-June period.
“The quarterly data gives us a totally different impression,” said Kenji Tanaka, an economist at the Development Bank of Japan.
“The impact of the consumption tax hike is not small in the least. A recovery in production has been delayed due to a slower than expected rebound in demand,” Tanaka said in a report, while calling it “good news” that production seemed to be on a recovery track in September.
“Today’s data is basically positive for the Japanese economy,” said Nomura’s Kuwahara. “Outlook figures suggest that production will return to growth in the current quarter.”
In September, 13 out of 15 sectors saw a rise in production. Output by transport equipment manufacturers, including automakers, jumped 4.7 percent due to robust sales of passenger cars and a recovery in exports to emerging Asian economies.
The electronic parts and devices sector saw a 5.8 percent rise, and electrical machinery makers a 5.4 percent gain.
The index of industrial shipments gained 4.3 percent to 97.9, the highest figure since January, while that of inventories was down 0.8 percent at 111.7.