Asia Economy

Japan's factory output, retail sales fall as demand stays depressed

Key Points
  • Japan's industrial output slipped for the second straight month in November, raising the likelihood the economy will fall into contraction in the fourth quarter due to slowing demand abroad and at home.
  • The economy has cooled in recent months due to a prolonged hit to exports from soft global demand and a slide in consumer spending following a nationwide tax hike.
  • Production was pushed down by a decrease in output of production machinery and information equipment, which offset a bounce back in output of cars and car engines, the data showed.
Japan Osaka City, Umeda Station.
Prisma by Dukas | Universal Images Group | Getty Images

Japan's industrial output slipped for the second straight month in November, raising the likelihood the economy will fall into contraction in the fourth quarter due to slowing demand abroad and at home.

The economy has cooled in recent months due to a prolonged hit to exports from soft global demand and a slide in consumer spending following a nationwide tax hike.

Official data showed factory output fell 0.9% in November from the previous month, a slightly slower decline than the 1.4% fall in a Reuters forecast.

That followed a downwardly revised 4.5% decline in the previous month, the largest on-month slump since the government started compiling the data in comparative form in January 2013.

"Manufacturers' output outlook (for Dec and Jan) suggests they kept expectations for recovery in factory output," said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.

"There is still uncertainty for the economic outlook as the effects from the U.S.-China trade friction will likely remain but there are positive signals for a moderate pickup in factory output."

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to gain 2.8% in December and rise 2.5% in January, the data showed.

Production was pushed down by a decrease in output of production machinery and information equipment, which offset a bounce back in output of cars and car engines, the data showed.

Separate data released on Friday showed retail sales dropped 2.1% in November, slipping more than expected as consumer sentiment stayed depressed after October's sales tax hike.

"The negative impact from the sales tax hike in retail sales will likely continue within this year," said Mutou.

"The focus is whether private consumption will start picking up next year."

The weak readings could pressure the government to come up with new ways to boost growth and force the central bank to maintain its stimulus program to prevent the economy from slipping into recession.

A trade ministry official said output was negatively impacted by slowing overseas demand for semiconductor production equipment, indicating the economy remains exposed to weakening external conditions.

Production machinery output was pressured by the impact from a powerful typhoon in October, the official said.

The government last week cut its overall view on the economy for the fourth time this year due to a downgrade in its assessment of manufacturing output despite a Sino-U.S. trade truce.

The broader economy is likely to stay under pressure as weak business and consumer confidence and a delayed pickup in global growth hurt demand.

The Bank of Japan stood pat last week though it warned risks to the recovery remained high and offered a gloomier view on output.

Japan's government last week approved a record budget for the coming fiscal year, which includes spending to help finance a $122 billion fiscal package put together this month by Prime Minister Shinzo Abe's cabinet to shore up growth.

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