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Japan’s factory output falls on slowing exports of cars and steel
September 01, 2018
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TOKYO: Japan’s factory output fell for a third straight month in July due to slowing exports of cars and steel and flooding that disrupted production, compounded by global trade tensions that cloud the export-reliant economy’s outlook.

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

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

Factory output has levelled 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.

“Japan’s exports are facing a severe situation given US trade protectionism and retaliatory measures adopted by its trading partners just as global trade decelerates,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Japan’s future growth will depend on the strength of private demand. But output will remain sluggish for the time being given worsening consumer sentiment due to the heavy rains and heat waves.”

July’s output was dragged down by automobiles and car parts reflecting declines in Europe- and US-bound shipments as well as effects of the floods. Steel output also fell because of the US tariffs imposed on imports from Japan and other trading partners.

DEMAND DECLINE

A slowdown in demand for semiconductor production equipment and flat panel displays from China and other Asian countries also dampened overall output.

This means that the outlook for 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 pick-up in production.

Japan’s economy rebounded from a first-quarter contraction in the June quarter led by strong household and business spending.

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

Despite the solid economy and tight labour 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 labour costs.

Tokyo’s core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 0.9 per cent in the year to August, rising from a 0.8 per cent gain in July, still way below the central bank’s elusive 2 per cent target.

Japanese stocks are forecast to rise 5 per cent over the rest of this year, with stronger corporate profits expected to underpin sentiment, but selling by foreign investors could cap the upside, a Reuters poll found.

In recent weeks, Sino-US. trade frictions and a selloff in emerging market currencies have heightened risk aversion, pushing Japanese stocks to one-month lows, as investors flocked to the safe-haven yen. A stronger yen cuts Japanese manufacturers’ profits made abroad when repatriated.

But an easing in US-Mexico trade tensions over the North American Free Trade Agreement (NAFTA) provided relief to the market this week.

Although lingering trade frictions could limit the upside, Japanese stocks will move up steadily towards the end of the year but then flatline, according to median estimates from 26 analysts and fund managers polled by Reuters in the past week.

Reuters

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