Japan October Industrial Output Slumps Amid Slowing Global Demand, in Reaction to Earlier Gains

–METI Survey: Output Likely to Dip in November, Rise in December

–METI Downgrades View: Output Picking Up Gradually but Shows Weakness in Some Areas

–METI Repeats: To Watch Effects of a Rise in Covid Cases, Parts Shortages, Inflation

By Max Sato

(MaceNews) – Japan’s industrial production posted the second straight monthly drop in October, hit by slowing global demand for production machines and electronic parts, and in payback for earlier gains on easing supply bottlenecks, preliminary data released Wednesday by the Ministry of Economy, Trade and Industry showed.

The METI’s survey of producers indicates that output is likely to dip in November before rebounding somewhat in December. The ministry noted that the output of electronic parts and devices is seen falling in both months.

The ministry downgraded its view just two months after its last upgrade, saying industrial output is “picking up gradually but also showing weakness in some areas.” Previously, it had said production was “showing signs of a moderate increase.” The METI repeated that it will keep a close watch on the impact of a rise in Covid cases on domestic and global growth as well as parts and materials supply shortages and rising prices.

The key points from the data:

* Industrial production slumped a seasonally adjusted 2.6% on the month in October, coming in much weaker than the median economist forecast of a 1.7% fall (forecasts ranged from a 3.7% drop to a 0.4% rise). It followed a downwardly revised 1.7% in September and gains of 3.4% in August and 0.8% in July. The 9.2% surge in June was due to the reopening of Shanghai after two months of a Covid lockdown of the port city, which helped improve supply shipments.

* Of the 15 industries, eight posted decreases and seven recorded increases from the previous month. Leading the decline were equipment to produce semiconductors in reaction to recent gains and machines to make flat-panel displays in the face of falling demand from overseas, as well as memory chips, also due to slowing global demand. Output of small passenger cars, conveyor belts and cranes posted gains.

* Production made a soft start to the October-December quarter after rebounding 5.9% on quarter in July-September and falling 2.7% in April-June. Despite slowing global economic growth, Japanese export values hit another record high in October as easing supply constraints continued supporting the auto industry and the prices for fuels and semiconductors remained high while the Cabinet Office’s export volume index marked a second straight gain on the month in October.

* Based on its survey of manufacturers, METI projected that industrial production would rise 3.3% on the month in November (revised up from a 0.8% rise forecast last month) and gain a further 2.4% in December, although output of electronic parts and devices are seen down in both months. Adjusting the upward bias in output plans, METI forecast production would fall 0.8% in November. The seventh wave of the pandemic in Japan had eased by early September after the number of new Covid cases surged to record highs, but there are signs that an eighth wave is emerging, which could affect factory operations.

* The METI October business sentiment index based on its November survey improved further to -5.4 percentage points (firms with bullish views accounted for 25.6% while those with bearish views came to 30.9%) from -7.5 (bulls 23.2% vs. bears 30.7%) the previous month. It remains the highest since -5.2 in November 2021 (December survey). Figures below -5 indicates the economy may be in a downturn phase. The sentiment index was in positive territory from June 2020 until May 2021. 

* The index of industrial production (100 in the 2015 base year) stood at a five-month low of 95.9 in October. It is still above the recent bottom of 77.2 hit in May 2020 but below 99.1 seen in January 2020, when the pandemic hadn’t had a widespread impact yet. The index briefly jumped to 100.2 in August this year.

* Production fell during the first wave of the pandemic in 2020. After a pickup later that year, more waves of infections caused logistical bottlenecks amid reopening demand and prompted parts supply delays from Southeast Asia, where lockdowns hit factory operations in August 2021. Later, easing supply bottlenecks pushed up production from October to December last year.

* From a year earlier, the production index rose 3.7% in October, marking the third straight rise after surging 9.6% (revised down from a 9.8% rise) in September and rising 5.8% in August. It was below the median economist forecast of a 5.1% rise (forecasts ranged 2.6% to 6.2% increases). Production showed double-digit percentage gains on year from April to July 2021 in reaction to the pandemic-caused slump the previous year.

* Shipments posted their second straight drop, down 1.1% on the month in October, after falling 2.5% in September and rising 2.8% in August. As seen in output, shipments of equipment to produce semiconductors and flat-panel displays dropped after recent gains and amid slowing global growth. Those of automobiles dropped on parts supply shortages.

* Inventories dipped 0.8% for the first drop in five months after rising 2.9% in September and edging up 0.7% in August. The METI noted parts and materials shortages for passenger cars and trucks. Production of those items declined more sharply than their shipments in October, leading to lower inventories for the auto industry.