Japan’s Oct factory output falls again on global slowdown, weak chip demand

(C) Reuters. FILE PHOTO: Workers check the machinery at the factory of aircraft component manufacturer Aoki in Higashiosaka, Japan June 22, 2022. REUTERS/Sakura Murakami/File Photo

By Kantaro Komiya

TOKYO (Reuters) – Japan’s factory output fell for a second consecutive month in October, as stalling global demand and lingering supply bottlenecks put a lid on Japanese manufacturers’ production plans.

The feeble business activity highlights challenges for the world’s third-largest economy, which has been lagging behind peers in recovering from the pandemic. The government is rolling out another stimulus package to counter 40-year-high inflation.

Factory output fell 2.6% in October from a month earlier on a seasonally adjusted basis, government data showed on Wednesday. The dip was larger than economists’ median forecast of a 1.5% decline and followed a revised 1.7% decrease in September.

Production machinery output slipped 5.4%, while electronic parts and devices output decreased 4.1%, driving the overall index down in October. But production in the auto-related sector, a key industry for Japan Inc with many suppliers involved, advanced 5.6%.

Fresh COVID-19 outbreaks in Chinese cities pose another risk to Japan’s production outlook, as major Japanese carmakers including Toyota and Honda said they have adjusted production in China due to local lockdowns.

The Ministry of Economy, Trade and Industry (METI) cut its assessment of industrial output for the first time in five months, saying “production is gradually picking up, but some weaknesses are observed”.

Manufacturers surveyed by the METI expected output to rise 3.3% in November and increase 2.4% in December.

After a surprise contraction in July-September, economists forecast annualised 3.1% growth in Japan’s October-December gross domestic product, a Reuters poll showed on Tuesday.

To counter increasing costs for households and businesses, partly exacerbated by the yen’s decline this year to three decade lows, Japanese Prime Minister Fumio Kishida has sought another 29 trillion yen ($210 billion) extra budget, which will likely pass the parliament later this week.

($1 = 138.7500 yen)