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Published: 10:23, June 30, 2022 | Updated: 10:27, June 30, 2022
Japan's worst factory output in 2 years heaps pressure on economy
By Reuters
Published:10:23, June 30, 2022 Updated:10:27, June 30, 2022 By Reuters

A man rides a bicycle before Keihin industrial zone in Kawasaki, Japan on April 23, 2021. (PHILIP FONG / AFP)

TOKYO - Japan's factory output posted the biggest monthly drop in two years in May as semiconductor and other parts shortages hit manufacturers, adding more pressure on an economy struggling to mount a strong recovery.


Factory output slumped a seasonally adjusted 7.2 percent 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 dropped sharply

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

Factory output slumped a seasonally adjusted 7.2 percent 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 dropped sharply.

The decline, which marked the sharpest monthly reduction since a 10.5 percent month-on-month drop in May 2020, was much bigger than a 0.3 percent fall expected by economists in a Reuters poll.

"The plunge in industrial output in May suggests that Japan's recovery is disappointing yet again," said Marcel Thieliant, senior Japan economist at Capital Economics.

ALSO READ: Japan's April factory output slumps in worrying sign

"The conventional wisdom is that supply shortages are the main culprit," he added. "However, the fact that inventories were broadly stable despite plunging output suggests that weak demand is playing a role."

Pedestrians walk on a street in Tokyo's Ginza district on June 26, 2022. (PHILIP FONG / AFP)

While activity in Japan's services sector is picking up thanks in part due to a modest post-pandemic spending rebound, the country's manufacturing sector is facing pressure from parts and high-tech chip supply disruptions

The data comes a day after Toyota Motor Corp, the world's largest automaker by sales, said it missed its already downgraded global production target for May.

Toyota produced 634,940 vehicles globally last month compared to its target of about 700,000, which it had lowered by 50,000 from 750,000 in mid-April.

"Sluggishness in demand is likely to hurt output ahead," said Takeshi Minami, chief economist at Norinchukin Research Institute.

While activity in Japan's services sector is picking up thanks in part due to a modest post-pandemic spending rebound, the country's manufacturing sector is facing pressure from parts and high-tech chip supply disruptions.

The government cut its assessment of industrial production, saying it was weakening, a downgrade from its previous view that output was stalling.

READ MORE: Japan's economy rebounds on spending, virus clouds outlook

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

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