Japan’s industrial production (JNIPYOY) fell in June by the most since March 2011, when the nation was hit by a record earthquake, as automakers cut output (JNIPMOM) for a second month after a surge in April.
Output declined 3.3 percent from the previous month, the Trade Ministry said today in Tokyo, after climbing in May by the most since December 2011. Production slid 4.8 percent from a year earlier in June. The jobless rate was 3.9 percent, the lowest since 2008, a separate report showed.
Today’s report adds to challenges for Prime Minister Shinzo Abe, who must decide whether to proceed with a consumption-tax increase that threatens to arrest a rebound in the world’s third-largest economy. Weakening production would undermine his calls for higher wages to bolster his reflation efforts after temporary boosts from monetary and fiscal stimulus.
“The fall in production is likely temporary and will be offset by the expected July increase,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo and a former Bank of Japan official. “I don’t think there has been a change in the underlying trend for industrial output.”
The decline in industrial output was steeper than any economists forecast in a Bloomberg News survey where the median of 29 estimates was for a 1.5 percent drop. Production is expected to rise 6.5 percent in July from June, then drop 0.9 percent in August, according to a survey of companies by the ministry.
Abe’s polices have weakened the yen about 12 percent against the dollar this year, bolstering exporter profits and pushing up stocks. The Topix Index of shares advanced 1.6 percent percent as of 12:42 p.m. in Tokyo even after today’s production figures, and was heading for the first gain in five days.
While the lower jobless rate mainly reflected a decline in the work force, the labor market is “improving gradually but steadily,” Miwako Nakamura, a Tokyo-based economist at JPMorgan said in a note.
Car production in Japan fell in June, with Toyota Motor Corp.’s output dropping 9.9 percent from a year earlier, Honda Motor Co.’s falling 35 percent, and Nissan Motor Co.’s down 7.9 percent.
Japan has 30 percent odds of tipping into its fourth recession since 2008 should Abe go ahead with increasing the sales tax to 8 percent in April from the current 5 percent, according to the median of 23 estimates in a Bloomberg survey this month. He’ll need a 5 trillion yen ($50 billion) fiscal package to cushion the impact of the increase, the survey showed.
South Korean industrial output in June rose 0.4 percent on month, in line with the median estimate in a survey of economists by Bloomberg News, and dropped 2.6 percent compared to the same month last year.
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