Times of Oman
Nov 25, 2015 LAST UPDATED AT 07:19 PM GMT
Japan’s factory output drops most since 2011
July 30, 2014 | 12:00 AM
An employee operates a crane to move a roll of sheet aluminium on the production line at the Akao Aluminum Co. plant in Tokyo, Japan. — Photo: Bloomberg

Tokyo: Japanese industrial output fell the most since the March 2011 earthquake, highlighting the widening impact to the economy of April's sales-tax increase.

Industrial output dropped 3.3 per cent in June from May, the trade ministry said on Wednesday in Tokyo, more than twice the median forecast for a 1.2 per cent contraction in a Bloomberg News survey of 31 economists.

The manufacturing sector has cut back in response to a slump in consumer spending and a failure of exports to pick up even after an 18 per cent drop in the yen last year. Honda Motor and Nissan Motor this week reported jumps in profit, showing how the weaker currency is contributing to earnings gains without bolstering the economy.

"Today's data are very ugly — companies are becoming even more cautious on the outlook for the economy after the sales-tax hike," said Taro Saito, director of economic research at NLI Research Institute in Tokyo.

"Japan's economy doesn't have a driving force, with consumer spending and exports having stalled," he added further.

The yen was little changed after the output data, trading at 102.13 against the dollar at 12:11pm in Tokyo. The Japanese currency has climbed about three per cent this year after its 18 per cent drop in 2013. The Topix index was up 0.1 per cent in morning trading after closing at a six-month high on Tuesday.

Mobile phones
In a contrast to Japan, South Korea's industrial production surged 2.9 per cent in June from the previous month, the most since September 2009, on demand for semiconductors used in mobile devices, Statistics Korea said on Wednesday. That was stronger than a median forecast for a 1.2 per cent gain in a Bloomberg survey of economists.

Japanese production fell across most sectors, with transport equipment, which includes automobiles, dropping 3.4 per cent from the previous month, and output of desktop computers, mobile phones and other communications equipment sliding nine per cent. Domestic demand, which had compensated for weak exports, fell off from April, and inventories rose in May as companies didn't slow production much, contributing to the June output cut, according to Yasushi Ishizuka, a director in the trade ministry statistics department.

Rising inventories
The ministry cut its assessment of production for the first time since September 2012, saying that output is weakening. Shipments tumbled for a fifth straight month, helping to push up inventories, which rose to the highest since November 2012. The ratio of inventories-to-shipments jumped to the highest since March 2012, showing that companies built up more stock than demand warranted.

The rise in inventories points to prolonged weakness in Japanese manufacturing activity, Izumi Devalier, a Japan economist at HSBC Holdings in Hong Kong, wrote in an e- mailed note.

While manufacturers surveyed by the ministry forecast a recovery in output in the coming months, these should be treated with caution as companies tend to overestimate future production, according to a research note from economists at Capital Economics.

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