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Home News Japan’s Factory Output Surges Amid Concerns Over Economic Recovery

Japan’s Factory Output Surges Amid Concerns Over Economic Recovery

by Barbara

Japan’s factory output experienced a greater-than-expected increase in September, driven primarily by a recovery in automotive production, as the economy continues its fragile recovery. The Industry Ministry reported a 1.4% rise in industrial production compared to August, surpassing a consensus forecast of 0.8%. However, output still lagged 2.8% behind year-ago levels.

For the third quarter, production dipped 0.4% from the previous period, potentially impacting growth figures. Additionally, retail sales fell by 2.3% in September compared to August, with only a 0.5% increase from the previous year.

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Despite the stronger-than-anticipated September data, the overall production trends from the last quarter remain weak, casting a shadow over the economic outlook amid uncertainties regarding domestic and global demand. In response, Prime Minister Shigeru Ishiba has committed to formulating a more extensive economic stimulus package than last year’s to alleviate the impact of inflation on households and encourage growth.

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The Bank of Japan (BOJ), which concludes its meeting later today, is closely monitoring these figures to determine if the economy can withstand another interest rate hike in the coming months. The BOJ is widely expected to maintain current rates at this meeting.

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Yuichi Kodama, an economist at Meiji Yasuda Research Institute, noted, “Production improved partly due to the recovery of the automotive sector. However, the overall figures have been lackluster in recent months, largely due to uncertainties in overseas economies, particularly in China.”

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The September uptick in factory output was influenced by the automotive sector’s recovery from past regulatory challenges related to falsified vehicle safety certifications. Yet, declining external demand raises concerns about the sustainability of this production strength moving forward.

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Looking ahead, factory output is projected to rise by 8.3% in October, but a subsequent decline of 3.7% is anticipated in November, highlighting the ministry’s tendency for optimistic projections. Japan’s production remains susceptible to uncertainties in key foreign markets, particularly with the upcoming US presidential election on November 5. A potential return of Donald Trump to the White House could result in his proposed 10% tariffs on goods from various countries, which would adversely affect Japan.

China, Japan’s largest trading partner, is also working to boost domestic demand through significant economic stimulus measures.

Meanwhile, persistent inflation continues to dampen consumer spending. Despite retail sales being lifted by rising prices, the output figures for September were disappointing, with consumption remaining fragile as real wages fell again in August after a brief increase.

The BOJ is expected to revise its forecasts for inflation and growth later today. The central bank has maintained its position that it will consider raising interest rates and reducing monetary easing if inflation aligns with its expectations.

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