Business / Economy

Japan’s factory output declines due to natural disasters and slowing exports, raising growth worries

Reuters

The country’s industrial output fell for a third straight month in July, as factory activity struggled to pick up due to slowing exports and flooding that disrupted production. This was compounded by global trade tensions that cloud the export-reliant economy’s outlook.

Trade ministry data, released Friday, showed factory output fell 0.1 percent in July from the previous month, undershooting economists’ median estimate of a 0.2 percent rise, following declines of 1.8 percent in June and 0.2 percent in May.

Manufacturers surveyed by the trade ministry expect output to rise 5.6 percent in August and 0.5 percent in September.

Factory output has leveled off in recent months due in part to a slowdown in exports. Natural disasters, including early July’s heavy rains and flooding in western Japan, temporarily halted production at some companies such as carmakers.

The outlook on factory output and the broader economy is far from assured, given fragile domestic demand and trade tensions between the United States and its trading partners.

The ministry cut its assessment of industrial output, citing weakness in some areas despite a gradual pickup in production.

The economy rebounded from a first-quarter contraction in the quarter to June led by strong household and business spending.

The unemployment rate rose to 2.5 percent in July from 2.4 percent in the previous month, while the jobs-to-applicants ratio rose to 1.63 jobs per applicant from the 1.62 seen in June, posting the highest level since January 1974, separate data showed.

Despite the solid economy and tight labor market, inflation is struggling to accelerate as slow wage gains keep a lid on private consumption because companies are unconvinced about the sustainability of growth and are wary of raising fixed labor costs.

Tokyo’s core consumer price index, which includes oil products but excludes fresh food prices, rose 0.9 percent in the year to August — versus a 0.8 percent rise expected by economists — less than half the central bank’s 2 percent target.

The Tokyo index is available a month before the nationwide core CPI and serves as a leading indicator of consumer inflation.

The country’s annual core consumer inflation, which also includes oil products but excludes volatile fresh food prices, held steady at 0.8 percent in July, data showed last week.

The Bank of Japan last month conceded inflation could fall short of its elusive 2 percent target until early 2021 and made its policy framework more sustainable as options dwindle.