As risks arise, Japanese factories’ production drops more than expected

Tokyo — Japanese factory production shrank for the first time in three months in December. This is because the decline in machine production outweighed the slight increase in automobiles, casting a cloud over the power of economic recovery.

Retail sales recorded a year-on-year increase for the third straight month in December as the decline in coronavirus boosted shoppers. However, this month’s record-breaking infections caused by Omicron variants are expected to hurt consumer sentiment.

Factory output in December fell 1.0% from the previous month, down due to lower production of general purpose and production machinery, including chip manufacturing equipment and engines used in manufacturing, according to official data on Monday.

This means that production fell for the first time in three months, faster than the 0.8% decline predicted in Reuters economist polls.

Takeshi Minami, Chief Economist at the Norinchukin Research Institute, said:

“It suggests that the impact is expanding despite the focus on the automotive industry.”

Automakers are forced to curb production despite recovery in demand in key markets such as China, while also having to deal with the surge in semiconductor demand from consumer electronics companies. did not.

Toyota Motor Corp., the world’s largest car dealership, said this month that it expects to fall below its annual target of 9 million units by the end of March due to resistance from chip shortages.

Last week, motor maker Nidec’s third-quarter operating profit fell as rising material prices and a shortage of semiconductors weighed on profits.

According to the data, car and other car output growth slowed to 1.5% from the previous month in December, much weaker than the 43.7% surge in November and the 15.9% surge in October.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected production to increase by 5.2% in January and 2.2% in February.

Forecast risk

According to a Reuters poll, the world’s third-largest economy is expected to grow 4.5% annually this quarter, but some economists have warned of downside risks to rosy forecasts.

Yoshiki Shinie, chief economist at Daiichi Seimeikeizai, said growth in the first quarter faced a blow to consumer spending due to the spread of the coronavirus and lower car production.

“Depending on the infection situation, the period from January to March can be negative,” Shinke wrote in the report.

According to other data, retail sales in December increased 1.4% year-on-year, less than the expected 2.7% increase.

Although sales slowed year-on-year, sales increased for the third consecutive month due to increased demand for miscellaneous goods and food and drink.

In Japan, the number of cases of COVID-19 caused by Omicron variants has skyrocketed in recent weeks, forcing the government to deploy a tougher curb that now covers 70% of the country.

The index, which measures consumer confidence, fell 2.4 points in January, the lowest since August. A government investigation found that record-breaking infections with Omicron variants were emotionally damaging.

By Daniel Leussink