# Japan’s factory output posts biggest fall in 8 months on weak autos, chips sectors
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-02-28
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Japan's factory output shrinks in January as retail
Meta Description: Japan's factory output shrank 4.6% in January, impacting key industries. Retail sales surged, reflecting divergent paths in economy
URL: https://financedigest.com/japans-factory-output-posts-biggest-fall-in-8-months-on-weak-autos-chips-sectorshtml

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By Kantaro Komiya

TOKYO (Reuters) – Japan’s factory output shrank at the fastest pace in eight months in January as declining overseas demand took a heavy toll on key industries such as auto and semiconductor equipment.

In contrast, retail sales posted their fastest growth in nearly two years, separate data showed, highlighting the divergent paths between soft manufacturing and robust service-sector activity.

[“Weak export-bound production and a recovery in consumption continue](https://www.financedigest.com/uk-housing-market-weakness-continues-improvement-on-the-horizon-rics.html "UK housing market weakness continues, improvement on the horizon – RICS") to be the two main focuses of Japan’s economy,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. He expects the new Bank of Japan leadership will be slow to [tweak monetary policy](https://www.financedigest.com/yen-retreats-after-boj-policy-tweak-sparked-surge.html "Yen retreats after BOJ policy tweak sparked surge") amid the uncertainty.

Factory [output fell 4.6% in January from a month](https://www.financedigest.com/spanish-manufacturing-output-down-for-6th-straight-month-in-dec-pmi.html "Spanish manufacturing output down for 6th straight month in Dec -PMI") earlier on a seasonally adjusted basis, government data showed on Tuesday. The contraction was much larger than economists’ median forecast of a [2.6% decline and followed an upwardly revised 0.3% increase in December](https://www.financedigest.com/aldi-uk-says-december-sales-up-26.html "Aldi UK says December sales up 26%").

It marked the fastest decrease since May 2022’s 7.5% fall, when China’s COVID-19 lockdown disrupted Japanese manufacturers’ [supply chains](https://www.financedigest.com/how-to-bring-immediacy-back-to-the-supply-chain-with-faster-payments.html "How to Bring Immediacy Back to the Supply Chain With Faster Payments").

Output of auto [products slumped](https://www.financedigest.com/roche-flags-2023-earnings-decline-on-slump-in-covid-products.html "Roche flags 2023 earnings decline on slump in COVID products") 10.1%, dragging the overall index lower while manufacturing of items such as production machinery and electronic parts dropped 13.5% and 4.2%, respectively.

Semiconductor-making equipment was down 26.8% as chip firms slowed their capital expenditure, while passenger cars fell 7.4% due in part to component supply bottleneck caused by heavy snow across Japan, a Ministry of Economy, [Trade and Industry](https://www.financedigest.com/eu-recovers-appetite-for-trade-in-green-industry-push.html "EU recovers appetite for trade in green industry push") (METI) official told reporters.

The United States-led [export control of chip equipment against China](https://www.financedigest.com/dutch-responds-to-us-china-policy-with-a-plan-to-curb-semiconductor-tech-exports.html "Dutch responds to US China policy with a plan to curb semiconductor tech exports") “has not had an immediate effect” on Japanese industrial production in January, the official added.

GRAPHICS: Japan’s factory output posts [biggest fall](https://www.financedigest.com/biggest-uk-house-price-fall-recorded-since-financial-crisis.html "Biggest UK house price fall recorded since financial crisis") in 8 months (https://www.reuters.com/graphics/JAPAN-ECONOMY/OUTPUT/dwvkdzzeypm/chart.jpg)

The magnitude of the slowdown was partly due to the early start to the Lunar New Year this year, which started just 22 days after the [turn of the calendar year,”](https://www.financedigest.com/2043-the-year-britain-will-turn-cashless.html "2043: The year Britain will turn cashless") said Darren Tay, Japan economist at Capital Economics, adding production will rebound in February.

Manufacturers surveyed by METI expect output to [rise 8.0% in February and gain 0.7% in March](https://www.financedigest.com/uk-new-car-sales-rise-17-in-march-best-ever-month-for-evs.html "UK new car sales rise 17% in March; best ever month for EVs"), the data also showed, although the official poll tends to report an optimistic outlook.

Separate data showed Japanese retail sales rose 6.3% in January from a year earlier, [beating a median market forecast for a 4.0% gain and posting](https://www.financedigest.com/truck-maker-volvo-posts-record-q1-as-sales-margins-beat-forecasts.html "Truck maker Volvo posts record Q1 as sales, margins beat forecasts") an eleventh consecutive month of expansion. It also logged the [fastest growth since](https://www.financedigest.com/sentiment-in-uk-finance-falls-at-fastest-pace-since-2019-survey.html "Sentiment in UK finance falls at fastest pace since 2019, survey") May 2021.

Despite the production cuts, [retail sales](https://www.financedigest.com/uk-retailers-turn-positive-on-sales-hopes-after-bleak-winter.html "UK retailers turn positive on sales hopes after bleak winter") of autos rose 19.3% year-on-year, suggesting strong pent-up demand among domestic consumers caused by delivery delays.

Compared with the previous month, [retail sales](https://www.financedigest.com/valentines-day-spending-boosts-british-retail-sales-in-february-brc.html "Valentine’s Day spending boosts British retail sales in February – BRC") expanded 1.9% in January, following a 1.1% rise in December, the data showed.

Japan’s economy, the world’s third-largest, is expected to post an annualised 1.4% expansion in January-March according to a [Reuters poll](https://www.financedigest.com/bank-of-england-to-raise-rates-by-50bps-again-to-tame-inflation-reuters-poll.html "Bank of England to raise rates by 50bps again to tame inflation: Reuters Poll"), after weaker-than-expected 0.6% growth in the final quarter of 2022.

Kazuo Ueda, an academic nominated to become the Bank of Japan’s [next governor](https://www.financedigest.com/yen-trims-gains-as-possible-next-boj-governor-says-current-policy-appropriate.html "Yen trims gains as possible next BOJ governor says current policy appropriate") from April, has stressed the need to maintain the current ultra-low interest rates to support the fragile economy, while signalling the chance of tweaking the central bank’s long-term yield control scheme.

As Ueda has said, Japan won’t be [able to escape](https://www.financedigest.com/death-and-taxes-why-you-wont-be-able-to-escape-one-in-the-metaverse.html "Death and taxes—why you won’t be able to escape one in the metaverse") deflation until the economic recovery is achieved,” said Itochu’s Takeda.

So he wouldn’t hurry policy tweaks that could give a strong shock to the economy, such as a sharp [rise in interest rates.”](https://www.financedigest.com/oil-falls-as-earthquake-impact-on-crude-eases-rate-hike-fears-rise.html "Oil falls as earthquake impact on crude eases, rate hike fears rise")

(Reporting by Kantaro Komiya; Graphics by Pasit Kongkunakornkul; Editing by Shri Navaratnam and Sam Holmes)


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