Japan industrial production slumps further in Oct, outlook improves

By Ambar Warrick

Investing.com-- Japanese industrial production fell further in October as elevated raw material costs and slowing overseas demand saw local industries scale back output, although the outlook for production in the coming months appeared to have improved.

Industrial production sank 2.6% in October from the prior month, data from the Ministry of Trade, Economy and Industry showed on Wednesday, much more than estimates for a drop of 1.5% and also ahead of last month’s 1.7% decline.

The reading also missed the Ministry of Trade’s forecast for a 0.4% decline.

But production rose 3.7% from the prior year, indicating that Japan’s manufacturing sector was seeing some signs of recovery after the lifting of COVID-related restrictions this year.

Still, makers of industrial machinery, automobiles, and electronics continued to face near-term headwinds from more expensive input costs and weakening export demand. Shipments sank 1.1% in October from the prior month.

Rising inflation is one of the biggest weights on the Japanese economy this year, with increased costs weighing on producers as well as consumers. Data on Tuesday showed Japanese retail sales sank further in October, as inflation hit a 40-year high during the month.

Still, the Ministry of Trade forecast improving trends for production in the coming months, thanks to increased production of industrial machinery and chemicals. Production is forecast to rise 3.3% in November and 2.4% in December.

But this is contingent on whether Japanese industries can navigate an increasingly adverse environment, with inflation broadly expected to trend higher for the remainder of the year.

A weakening yen also weighed on export margins this year. The Japanese currency is trading down nearly 20% for 2022, as the gap between local and U.S. interest rates widened.

Despite the weakening currency and increased inflation, the Bank of Japan has so far given no indication that it intends to tighten monetary policy.

Japan’s economy unexpectedly shrank in the third quarter, and is expected to remain under pressure for the remainder of the year.

The yen fell 0.1% to 138.81 against the dollar after Wednesday’s reading.