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Japan’s factory output and retail sales climbed in June, suggesting the economy was starting to regain a more solid footing before the record explosion of virus cases in recent days.

A rebound in auto production helped industrial output gain 6.2% from May, while retail sales rose 3.1%, the economy ministry reported Friday. Both figures exceeded the median estimates from analysts.

Separate reports also showed improvement in the labor market, with the unemployment rate ticking down and job offers exceeding seekers by a slightly wider margin.

Improved production and retail receipts at the end of the second quarter supports a view that Japan’s economy is likely to have returned to growth in the period, although a resurgence of virus cases after June’s lull could push back the timetable for a more robust recovery.

Japan on Thursday found a record of more than than 10,000 new virus cases. Economy Minister Yasutoshi Nishimura on Friday said he wants to extend a virus emergency in Tokyo to the end of August and bring surrounding areas and Osaka under similar measures.

Key Insights

  • Demand from the U.S., China and other reopening overseas markets has helped the manufacturing sector lend key support to the recovery, while service businesses have been mired in restrictions to curb the virus. Production gained for a fourth straight quarter in the three months through June, although the pace slowed.
  • “That says the power of Japan’s economic engine may get slightly weaker, although the recovery will continue,” said economist Takeshi Minami at Norinchukin Research institute. “Unless the government takes drastic measures, the recent rise of Covid cases is unlikely to become a new heavy burden for the economy--face-to-face services will face strong headwinds, but the overall recovery won’t collapse.”
  • Still, while consumers are learning to cope with on-again-off-again restrictions on bars and restaurants, a fuller recovery can’t happen until there’s more progress in delivering vaccines. High rates of vaccination among the elderly are keeping hospitalization numbers down, but only about a quarter of the population is fully vaccinated, roughly half that of the U.S.
  • Japan this week earned the dubious distinction of being one of only two advanced economies to have its growth prospects cut for 2021 by the International Monetary Fund. The fund cited ongoing restrictions to curb the virus, although it said Japanese growth would quicken in the second half and into 2022.

What Bloomberg Economics Says...

“The stronger-than-expected rebound in June industrial production cemented a solid rise in the second quarter -- helping support an economy that struggled from virus-containment measures. The pickup was spurred mainly by external demand.”

--Yuki Masujima, economist

To read the full report, click here.

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  • Auto production gained 23% from a month earlier. Output of factory machinery, including chip-making devices, climbed 8.9%
  • From last year’s dismal level, overall production rose 22.6%, beating analyst’s estimates.
  • Japan’s unemployment rate edged down to 2.9% in June from 3%.
  • The jobs-to-applicant ratio rose to 1.13 compared with 1.09 in May. That means there were 113 job offers per 100 applicants.

(Adds economists comments.)

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