• Bloomberg, Kyodo


Industrial output dropped more than forecast in May as production of transport equipment and cars slowed, sapping a recovery in the world’s third-largest economy.

Output fell 2.2 percent from April, when it rose 1.2 percent, the Ministry of Economy, Trade and Industry said Monday. Economists had forecast a 0.8 percent decline. Retail sales rose 1.7 percent from the previous month, which was more than estimated.

The rebound from the recession last year is showing signs of losing momentum at a time when global uncertainty is increasing with the slowdown in China and the financial turmoil in Greece.

JPMorgan Chase & Co. cut its growth estimate for the second quarter last week after Japan logged weaker-than-expected consumer spending and sluggish trade, saying the economy will slow to a halt.

“Japan’s economic growth will probably slow considerably in the second quarter, reflecting weak exports and production,” said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance Co. “Weakness in exports and sluggish car sales in the domestic market are reflected to the decline in production in May.”

Japanese stocks fell and the yen spiked as Greece moved to avert the collapse of its financial system after aid talks with its creditors fell apart, raising the risk it could be forced to exit the eurozone.

Twelve sectors out of 15 saw their production decline.

The biggest contributor to the decline in production in May was cars, followed by automobile parts, according to METI. Output of transport equipment fell 5.4 percent in May from the previous month, the biggest decline since September 2012.

The electronic parts and devices sector saw output drop 4.3 percent as exports fell on the back of slowing production of smartphones in Asia including China, the official said.

Output by the chemicals industry sank 6.1 percent on falling sales of cosmetics.

“Facing the decline in May, I have to say a recovery in output is a little slower (than expected)” following the sales tax hike to 8 percent from 5 percent last year, said Kenji Tanaka, an economist at the Development Bank of Japan.

Looking ahead, manufacturers polled by the ministry said they expect output to increase 1.5 percent in June and 0.6 percent in July.

But Tanaka said, “It should be noted that (overall) pile-up in inventories is expected to weigh on growth in output for the time being.”

In the reporting month, information and communication electronics equipment makers saw production grow by 2 percent. Output by the iron and steel sector, as well as the textiles industry, edged up 0.5 percent and 0.7 percent, respectively.