(Bloomberg) -- Japan’s factory output fell in August, adding to signs that the country’s economic recovery may lose momentum in the third quarter in a worrying sign for Japan’s new prime minister.
Industrial production declined 3.3% from July, led by carmakers and chemical goods producers, the Industry Ministry reported on Monday. That missed the consensus estimate of a 0.5% decline. Output fell 4.9% from a year ago.
Separately, retail sales rose 0.8% in August from July, while they gained 2.8% from a year ago.
The weak production results indicate that the economy may be losing momentum, in negative news for Shigeru Ishiba, as he is set to become the nation’s new premier after last week winning the ruling Liberal Democratic Party’s leadership election. Earlier data showed Japan’s export growth slowed in August as car shipments declined, missing consensus estimates.
“Exports are struggling to grow, and I think the certification scandal is also hitting the auto sector. As a result, production is weak,” said Takeshi Minami, economist at Norinchukin Research Institute.
Toyota Motor Corp.’s sales fell more than 9% in Japan in August, as it felt the delayed impact of recent regulatory scandals involving falsified vehicle safety certifications, which forced a number of the country’s biggest carmakers to suspend production for affected models.
Uncertainties remain high over the state of external demand. Traders have been ramping up wagers on another rate cut by the Federal Reserve after it embarked on an easing cycle earlier this month in a bid to secure a soft landing. China last week unveiled unusually broad steps to revive growth that’s been stifled in part by a moribund property market. The US and China are Japan’s two biggest trading partners.
Monday’s report forecast that Japanese production will rise 2% in September and gain 6.1% in October.
What Bloomberg Economics Says...
“The surprisingly steep drop in Japan’s industrial production in August was likely exacerbated by temporary factors. A government alert that a massive earthquake could hit the Nankai trough, coupled with the effects of a typhoon, weighed on output of autos, chip-making machines, and metals.”
— Taro Kimura, economist
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Persistent inflation has likely padded retail sales figures. The jury is still out on whether this year’s high wage gains have been sufficient to give consumers confidence to boost their spending, a key part of the positive cycle needed for sustainable growth.
“Price hikes are boosting retail sales, but I don’t think we are at a point where higher wages are fueling consumer spending,” said Norinchukin’s Minami.
The new government is expected to compile a stimulus package to help households contend with inflation affecting everything from energy to rice.
The Bank of Japan upgraded its assessment of consumer spending on Sept. 20 as it kept the benchmark interest rate unchanged. Governor Kazuo Ueda reinforced last week his message that while the BOJ will raise its key interest rate again if data allow, authorities won’t be in a hurry to do so. Ueda has also noted that the bank will continue close communications with the government whoever becomes the next prime minister.
In the election, Ishiba upset rival Sanae Takaichi, whose key policies include opposing BOJ rate hikes. The surprise outcome sparked a yen rally, as Ishiba is expected to support the central bank’s policy normalization process.
(Updates with more details, economist comments.)
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