Japan’s manufacturing declines 3.3% in June

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Japan’s manufacturing declines 3.3% in June

Japanese industrial output fell the most since the March 2011 earthquake, highlighting the widening impact that April’s sales-tax increase is having on the economy.

Industrial output dropped 3.3 percent in June from May, the Trade Ministry said yesterday in Tokyo.

The manufacturing sector has cut back in response to a slump in consumer spending and a failure of exports to pick up even after an 18 percent drop in the yen last year. Honda Motor and Nissan Motor this week reported jumps in profit, showing how the weaker currency is contributing to earnings gains without bolstering the economy.

“Today’s data are very ugly - companies are becoming even more cautious on the outlook for the economy after the sales-tax hike,” said Taro Saito, director of economic research at NLI Research Institute in Tokyo. “Japan’s economy doesn’t have a driving force, with consumer spending and exports having stalled.”

The yen was little changed after the output data, trading at 102.2 against the dollar in Tokyo.

The Japanese currency has climbed about 3 percent this year after its 18 percent drop in 2013. The Topix index was up 0.1 percent in morning trading after closing at a six-month high on Monday.

Japanese production fell across most sectors, with transport equipment, which includes automobiles, dropping 3.4 percent from the previous month, and output of desktop computers, mobile phones and other communications equipment sliding 9 percent.

Domestic demand, which had compensated for weak exports, fell off from April, and inventories rose in May as companies didn’t slow production much, contributing to the June output cut, according to Yasushi Ishizuka, a director in the Trade Ministry’s statistics department.

The ministry cut its assessment of production for the first time since September 2012, saying that output is weakening.

Shipments tumbled for a fifth straight month, helping to push up inventories, which rose to the highest since November 2012. The ratio of inventories-to-shipments jumped to the highest since March 2012, showing that companies built up more stock than demand warranted.

The rise in inventories points to prolonged weakness in Japanese manufacturing activity, Izumi Devalier, a Japan economist at HSBC, said.

While manufacturers surveyed by the ministry forecast a recovery in output in the coming months, these should be treated with caution as companies tend to overestimate future production, according to a research note from economists at Capital Economics.

Output will rise 2.5 percent in July from a month earlier, and 1.1 percent in August, according to yesterday’s data. Any recovery in production in the coming months will likely be slow, Capital Economics wrote.

Honda, Japan’s third-largest carmaker, raised its profit forecast to the highest in seven years earlier this week as the yen weakens and new models boost sales in emerging markets. Nissan reported a 37 percent profit jump on rising demand in China and the United States.

A weak rebound in the economy from an estimated contraction in the second quarter could complicate Prime Minister Shinzo Abe’s plans to lift the sales levy again in 2015. Finance Minister Taro Aso said Monday that the government would make a decision by the end of the year whether to raise the levy to 10 percent from 8 percent now.

Consumers reacted to April’s 3 percentage point increase in the tax by cutting spending, with retail sales falling more than expected in June, and household spending dropping for a third month, according to data released yesterday. Retail sales dropped 7 percent in the second quarter from the January-March period.

The economy is estimated to have contracted an annualized 5.2 percent in the April-June period, and will grow 2.4 percent this quarter.


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