Japan’s worst fall in industrial production in two years puts pressure on economy

Smoke rises from a factory at sunset at the Keihin industrial area in Kawasaki, Japan January 16, 2017. REUTERS/Toru Hanai/

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  • May production fell 7.2% m/m, much weaker than expected
  • Decline in the production of cars, electrical machinery and general machinery
  • Manufacturers see production recover in June and July

TOKYO, June 30 (Reuters) – Output at Japanese factories recorded the biggest monthly decline in two years in May as China’s COVID-19 lockdowns and shortages of semiconductors and other parts hit manufacturers, adding further pressure on an economy struggling for a strong recovery.

The decline also highlights the challenge the world’s third-largest economy faces in overcoming supply disruptions and persistently high commodity and energy prices that analysts say could weaken global demand.

Factory production fell 7.2% in May from the previous month, official data showed on Thursday, as production of items such as cars as well as electrical and general-purpose machinery fell sharply .

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The drop, which marked the biggest monthly reduction since a 10.5% month-on-month decline in May 2020, was far larger than a 0.3% drop expected by economists in a Reuters poll.

“The fall in industrial production in May suggests that the recovery in Japan is once again disappointing,” said Marcel Thieliant, senior Japanese economist at Capital Economics.

“The conventional wisdom is that supply shortages are the main culprit,” he added. “However, the fact that inventories are broadly stable despite the fall in production suggests that weak demand is playing a role.”

The data comes a day after Toyota Motor Corp (7203.T), the world’s biggest automaker by sales, said it missed its already lowered global production target for May. Read more

Toyota produced 634,940 vehicles globally last month against its target of around 700,000, which it lowered by 50,000 from 750,000 in mid-April due to pandemic curbs in Shanghai.

“Slow demand is likely to hurt future production,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

“It is entirely possible that demand in the global economy will be sluggish once the impact of China’s lockdowns fully dissipates.”

Production probably suffered the biggest impact from China’s shutdowns in May, a government official said, adding that it was likely to recover from June as the fallout from Chinese restrictions gradually fades.

As activity in Japan’s service sector rebounds, thanks in part to a modest post-pandemic rebound in spending, the country’s manufacturing sector faces pressure from supply disruptions in high-end parts and chips. technology.

The government slashed its assessment of industrial production, saying it was weakening, a downgrade from its previous view that production had stalled.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected production to rebound 12.0% in June, followed by a 2.5% expansion in July .

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Reporting by Daniel Leussink; Editing by Shri Navaratnam

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