Business / Economy

Japan's industrial output fell 0.8% in January; outlook unclear

Kyodo

Industrial output in January fell 0.8 percent from the previous month, the first drop in six months, with production in the transport equipment and chemical sectors shrinking, government data showed Tuesday.

With several economic indicators suggesting that private spending has been tepid, a downturn in output may provide another headache for Prime Minister Shinzo Abe’s government, which has been aiming to beat chronic deflation by boosting domestic demand.

The Ministry of Economy, Trade and Industry, however, kept its basic assessment unchanged as output rose on a year-on-year basis, saying industrial production shows signs of improving.

The index of output at factories and mines stood at 99.8 against the base of 100 in 2010, METI said in a preliminary report.

In January, output in the transport equipment sector dropped 4.7 percent from a month earlier, and that in the chemical sector, excluding pharmaceutical products, fell 3.5 percent.

Manufacturers polled in the survey said they expect output to rise 3.5 percent from the previous month in February but drop 5.0 percent in March.

The index of industrial shipments slid 0.4 percent to 98.5, while that of inventories was flat at 107.5.

Analysts attributed the decline in industrial production in January to sluggish exports due in part to the Chinese Lunar New Year holidays, which started late in the reporting month.

They added that output may remain lackluster as the yen has been on an upward trend against the dollar amid growing uncertainty over the economic policies of U.S. President Donald Trump.

Japanese companies are apparently “trying to monitor economic policies of the new U.S. administration and their impact on the global economy and financial market,” said Takuji Aida, chief economist at Societe Generale Securities.

Many policymakers echoed the view. Bank of Japan Gov. Haruhiko Kuroda said at a news conference in late January that the central bank is going to “closely watch the direction and the impact” of Trump’s policies as the U.S. economy “has great effects” on economic and market developments across the globe.

If Trump fails to convince markets that his economic policies will bolster the U.S. economy, stock prices may fall worldwide, raising demand for the yen, regarded as a relatively safe asset, with risk aversion increasing, economists said.

A rising yen usually undermines Japan’s export-oriented economy by making Japanese products more expensive abroad and decreases the value of overseas revenues in yen terms.

Recently, the Japanese economy has shown little signs of rapidly growth despite Abe’s so-called Abenomics policy mix, centering on the BOJ’s drastic monetary easing, fiscal expansion and structural reforms.

The economy grew only 0.2 percent from the previous quarter during the October-December period, with private consumption, accounting for roughly 60 percent of gross domestic product, falling 0.01 percent,

Household spending, a key indicator of consumption, fell for the 10th straight month in December.