Japan’s factory output rises for third month; stocks close higher

Japan’s factory output rose for a third straight month in August but at a slower pace, suggesting a recovery in manufacturing activity will be moderate, a Reuters poll showed on Friday. Japanese shares ended higher on Friday as traders await more US stimulus and recovery in industrial sector boosted sentiments.

Industrial output is expected to have risen 1.5% in August from the previous month, the poll of 17 economists showed. It had jumped a revised 8.7% in July, the fastest on record, as domestic and global demand for industrial products began to slowly recover from the coronavirus-induced slumps.

“We expect broad gains in the production, including electronic parts and devices, and transport machineries,” said Yusuke Shimoda, senior economist at Japan Research Institute.

“But the level of recovery in the factory output will still be about a half of losses caused by the coronavirus outbreak.”

A business survey released this week showed factory activity continued to contract in September amid subdued demand, but new orders were falling at a much slower pace and manufacturers were more confident in the outlook.

The Reuters poll also found retail sales probably fell 3.5% in August from a year earlier, which would mark a sixth-straight month of decline, as fears of contracting the virus kept consumers at home.

The trade ministry will release both factory output and retail sales on September 30 .

Analysts forecast the jobless rate edged up to 3.0% in August from 2.9% in the previous month and the jobs-to-applicants ratio, or availability of jobs, likely worsened to 1.05 last month from 1.08 in July.

“After the economic activity restarted from late May, some people are returning to work but the pace of recovery is slow,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Deflationary pressures are expected to persist. Tokyo’s core consumer price (CPI) index, which includes oil products but excludes fresh food prices, likely fell 0.3% in September from a year earlier, the same rate of decline seen in August, the poll showed.

Weak energy prices such as electricity and gas weighed on consumer prices, analysts said.

The government will publish Tokyo core CPI on Tuesday and jobs data on Friday.

Meanwhile, Japanese stocks rose on Friday, tracking tech-led strength on Wall Street overnight as hopes for more US stimulus offset some concerns about the health of the global economy.

The Nikkei 225 Index ended 0.51% higher at 23,204.62. The broader Topix gained 0.48% to 1,634.23.

For the week, however, the benchmark fell 0.67%, as some analysts warned that worries about a second wave of coronavirus cases in Europe could limit further upside for Japanese shares.

Supporting sentiment on the day, a top U.S. lawmaker said Democrats in the House of Representatives were working on a $2.2 trillion coronavirus stimulus package that could be voted on next week.

As much as $380 billion from the US Congress’ last big coronavirus aid package is unused and could help households and businesses if lawmakers approve, Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin said.

Japan’s high-tech shares rose, tracking overnight gains in US bellwethers such as Apple, Amazon.com, Nvidia Corporation and Facebook. Investors also bought shares before the next round of corporate earnings to ensure they are eligible to receive dividends on their holdings, traders and analysts said.

Among the top 30 core Topix names, electric parts maker Keyence and automaker Toyota Motor gained the most, up 2.16% and 1.73%, respectively.

The biggest underperformers were East Japan Railway Co, down 3.56%, and Central Japan Railway Co, which shed 2.85%.

There were 148 advancers on the Nikkei index against 69 decliners on Friday.

Separately, Japanese real estate funds and developers focusing on the retail sector are leading a stock market rally as investors bet the cheaply valued sector will outperform as consumer spending recovers from the coronavirus pandemic.

The gradual opening up of the Japanese economy from lockdowns has seen the stock market rise nearly 9% since August. Foreign buying of properties such as shopping complexes and mixed developments with shopping and restaurants has also picked up, helping to drive the recovery.

Reuters