Japanese factory output dips in alarming sign for economy | Business and Economy

Factory production is down 1.3 percent in April as the lockdowns in China and the war in Ukraine weigh on manufacturers.

Japan’s factory output fell sharply last month as China’s draconian “zero-COVID” policy and supply chain blockades hampered production and dampened growth prospects in the world’s third-largest economy.

Factory production fell 1.3 percent in April from the previous month, government data showed on Tuesday amid sharp declines in the production of items, including electronic parts and machinery.

The weak numbers, marking the first drop in three months, came a day after Toyota Motor Corp. missed its April global production target after production fell more than 9 percent year-over-year.

Toyota, the world’s largest automaker by sales, last week lowered its global production target for June, signaling the potential to cut production for the whole year.

However, separate retail sales and unemployment figures gave a better picture of the economy, about a third of which is trade-based.

Retail sales showed the largest increase in nearly a year as consumers ramped up spending after the government eased COVID-19 restrictions, despite rising inflation threatening to undermine demand. Retail sales rose 2.9 percent in April, the biggest jump since May 2021 and well above market forecasts. The unemployment rate was 2.5 percent, the lowest in more than two years.

“We should be wary of tighter labor market conditions leading to wage growth, which is the key the Bank of Japan has been looking for to gauge a sustainable inflation trend,” ING economists said in a note.

While Japan’s service sector has recovered from the COVID-19 pandemic, manufacturing has faced disruptions and higher material prices due to ongoing lockdowns in China and Russia’s war in Ukraine.

Manufacturers polled by the Ministry of Economy, Trade and Industry (METI) expect production to grow again in May, by 4.8 percent, followed by an increase of 8.9 percent in June.

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