Japan Industrial Output Fell More Than Expected in August — Update

By Megumi Fujikawa

TOKYO--Japan's industrial production declined more than expected in August, with uncertainties over the global economy further clouding the outlook for the country's manufacturing sector.

Industrial output fell 3.3% in August from the previous month, government data showed Monday. That compared with a 0.9% decline expected in a poll of economists by data provider Quick and July's 3.1% increase.

Companies expect production to increase 2.0% on month in September, according to the data. But some analysts said the forecast should have shown a stronger rebound after motor vehicle output slid 10.6% in August due to the impact of production suspension caused by a powerful typhoon.

"The stagnation in production shows that the pressure from the global economic slowdown is stronger than the impact of the production halt at some car factories," said Takuji Aida, an economist at Credit Agricole.

The slowing global economy and the Bank of Japan's rate increases have made companies turn to saving than spending, Aida said. "This shows that the virtuous cycle of wages, prices and growth is lacking in strength."

BOJ Gov. Kazuo Ueda has recently voiced caution about growing uncertainties over the global economic outlook. That has reduced expectations for an immediate rate increase.

Credit Agricole's Aida expects the central bank to raise interest rates to 0.50% in January from current 0.25% if the stock market calms down. But the bank likely needs to stop at the level to avoid falling back into deflation, he said.

Separate government data released Monday showed that retail sales rose 2.8% in August from a year earlier after a 2.7% increase in July.

The continued strength in consumer spending is encouraging but the weakness in industrial production suggest that the third-quarter economic performance will be softer than initially estimated, Capital Economics' Marcel Thieliant said in a note.

Some economists also worry that the Japanese economy may stray from its recovery track under Shigeru Ishiba, who is set to become the next prime minister and favors tighter fiscal policy.

The poor run of data could complicate moves to tighten fiscal policy and raise interest rates, said Stefan Angrick, senior economist at Moody's Analytics.

Still, "given the subdued backdrop, a premature turn towards tighter monetary and fiscal policy would be an added drag on the economy," Angrick said. "At worst, they could precipitate a broader downturn."

Reflecting such concerns, the Nikkei Stock Average fell more than 4% Monday morning.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

September 29, 2024 22:56 ET (02:56 GMT)

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