Japan’s Industrial Production Drops Much More Than Forecast

Japan's Industrial Production Worse Than Expected
  • Manufacturers left with more stock as shipments also decline
  • Production to rebound in June and July, ministry says

Japan’s industrial production declined more than economists forecast as a drop in exports hit most of the country’s manufacturing sectors.

Output declined 2.3 percent in May from April when it rose 0.5 percent, the trade ministry reported on Thursday. The median forecast of economists surveyed by Bloomberg was for a 0.2 percent drop, and the slump was bigger than all but one of the estimates.

The weak reading on production, along with Wednesday’s report that retail sales were flat in May and data showing another monthly drop in exports, adds to concern that Japan’s recovery is faltering after the economy returned to growth in the first quarter. The U.K.’s vote to leave the European Union last week has strengthened the yen and roiled financial markets, increasing risks to corporate earnings for Japanese companies.

"The report signals production is weak across sectors," said Toru Suehiro, senior market economist at Mizuho Securities Co. in Tokyo. The yen’s further strengthening after the Brexit vote is increasing the risks to production going forward, he said. 

Output dropped in 11 of 15 sectors, with chemicals excluding pharmaceuticals the biggest contributor to the overall decline. Other categories that also contributed to the drop were general purpose machinery and electronic parts and devices.

The Topix index has dropped almost 9 percent this month, plunging on June 24 with the Brexit vote, the most since the aftermath of the 2011 earthquake. The yen has strengthened more than 8 percent against the dollar this month.

Output is forecast to rise 1.7 percent in June, and then climb 1.3 percent in July, according to the trade ministry’s report.

Overall production of transportation equipment gained 0.7 percent as output of passenger cars rose, offsetting a decline in production of minicars. Output of the smaller vehicles dropped 11.8 percent in May from the previous month according to the ministry, with sales slumping 14.3 percent from a year earlier because of scandals surrounding fuel-economy tests.

Mitsubishi Motors Corp. last week forecast its first loss in eight years after setting aside money to compensate for manipulating fuel-efficiency ratings and falsifying test data. Suzuki Motor Corp.’s mini-car sales in Japan were hurt by the company’s admission it used improper fuel-economy testing methods.

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