Jan 30, 2023
Japan Factory Output Inches Down Amid Global Slowdown
(Bloomberg) -- Japan’s factory output inched down again in December to cap a dismal quarter for the manufacturing sector, as policymakers look to improved consumption and net trade to fuel a rebound in the economy.
Industrial production shrank 0.1% from November, dragged down by boilers and precision measuring equipment, according to the industry ministry Tuesday. Economists had forecast a 1% decline. Output slid 2.8% from a year ago, less than analyst estimates.
Production was down 3.1% in the fourth quarter compared to the previous three months, the biggest drop since the start of the pandemic, and suggesting a drag on the economy at the end of last year.
While the results were better than economists had expected, factory output remains below its pre-pandemic level in December 2019, a sign of weakness that could be used by the Bank of Japan to justify continued stimulus to support the economy.
“Given that the labor market has not yet returned to pre-covid levels, today’s output results will not change the BOJ’s existing argument that it will persist with current monetary policy,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.
Tepid production is weighing on the expected rebound in gross domestic product last quarter. The country’s GDP slammed back into reverse in the July-September period, mainly due to the yen’s depreciation. Fourth quarter data results are set to be released mid-February.
Among concerns for both Japan and the central bank is the global economic slowdown, caused by continued aggressive policy tightening across the world. International financial organizations have increasingly warned of the risk of a deceleration, with the International Monetary Fund’s director predicting that one-third of the world economy will enter a recession this year.
A slowdown in China demand is also a source of worry. Exports to China fell in December for the first time in seven months, after the country’s abrupt end to its zero-Covid policy last month resulted in a sharp virus resurgence and disruptions. Still, there are some signs already of improvement.
Chip shortages continue to be a downside risk for the Japanese auto industry. Toyota Motor Corp. said earlier this month that it expects vehicle output to recover to pre-pandemic levels in 2023, but warned that actual output could be 10% lower if it cannot procure enough parts.
What Bloomberg Economics Says...
“Looking ahead, we expect job market conditions will be mixed depending on industry in January. Labor-intensive businesses such as restaurants and hotels should continue to benefit from the return of foreign tourists and renewed government subsidies for travel. Manufacturers are likely to limit hiring due to weaker external demand.”
— Yuki Masujima, economist
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In more positive data retail sales rose 1.1% in December from a month earlier, a separate industry ministry report showed Tuesday. Despite inflation hitting a 40-year high, consumption remained somewhat firm.
Separate data from the labor ministry showed the jobs-to-applicants rate remained at 1.35 indicating there were 135 positions available for every 100 job searchers.
While that points to labor market tightness that should put upward pressure on wages, the ratio remains well below the 1.64 mark it reached in 2018, a level that still didn’t generate the pay gains sought by the central bank. The jobless rate also remained at 2.5%, above the pre-pandemic low of 2.2%.
“I don’t think today’s jobs-to-applicants ratio indicates a dramatic change in the employment trend,” said S&P’s Taguchi. “The result is not strong enough to believe that we are in a cycle where a tighter labor market leads to higher wages.”
(Updates with more details from the report, economist comments)
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