By Max Sato
— Japan’s METI Says Feb. 13 Quake Also Delayed Auto Parts Supply
(MaceNews) – Japan’s industrial production posted the first drop in two months after a sharp rebound in January, as global semiconductor shortages had prompted carmakers to trim output, preliminary data released Wednesday by the Ministry of Economy, Trade and Industry showed.
METI noted that the supply of auto parts was also disrupted in the aftermath of a 7.3-magnitude earthquake that hit northeastern Japan on Feb. 13, which is believed to be one of many aftershocks of the March 2011 quake that caused massive tsunami and the worst nuclear meltdown since Chernobyl.
The ministry maintained its view that factory output is “picking up,” backed by strong demand for equipment to produce semiconductors and flat-panel displays amid the Chinese and U.S. economic recovery.
But METI also repeated its warning about downside risks to domestic and global economic activity in light of another wave of new coronavirus cases and due to concerns about supply-chain network breakdowns.
Production of transport equipment has been slowing in recent months after posting sharp gains in the middle of 2020. Japanese carmakers are being forced to cut production in the face of a global shortage of semiconductors.
The chip shortage has been made worse by a fire that broke out on March 19 at a plant of Renesas Electronics, a key Japanese automotive semiconductor supplier. The company initially expected production to resume at the factory east of Tokyo in about a month, but has now said it is likely to take three to four months before its production lines return to normal.
Demand for semiconductor-producing equipment continued to be strong amid the global silicon cycle uptrend and a surge in demand for consumer electronics due to stay-home pandemic lifestyles.
The key points from the data:
- Industrial production slipped a seasonally adjusted 2.1% from the previous month in February, coming in much weaker than the median economist forecast of -1.2%. It was the first month-on-month drop in two months after a 4.3% jump in January (revised up from a preliminary +4.2%). METI said the decline was larger than usual as the Feb. 13 earthquake delayed auto parts supply.
- The decrease was led by lower production of passenger cars, base station telecom equipment and chemical products (synthetic detergents, cosmetics). Production rose in some categories: equipment to make semiconductors and flat-panel displays, transport equipment excluding vehicles (aircraft engine parts, train cars) and electronic parts and devices (integrated circuits).
- Production fell m/m between February and May last year, with a steep 9.8% decline in April during the first wave of the pandemic, and rose between June and October, with an 8.7% surge in July.
- The Index of Industrial Production (100 in the 2015 base year) was at 95.7 in February, which was well above the recent bottom of 78.7 in May 2020, but it was still far below the recent peak of 99.8 in January 2020, when the pandemic hadn’t had a widespread impact yet.
- From a year earlier, the IIP fell 2.6% in February for the 17th straight year-on-year drop, with the pace of decrease decelerating from -5.2% in January and slower than the double-digit percentage decline seen between April and August last year.
- Based on its survey of manufacturers, METI projected that industrial production would fall 1.9% on month in March (revised up from -6.1% forecast last month) and would rebound 9.3% in April. Adjusting the upward and downward bias in output plans, METI forecast production would dip 1.4% in March.
- “Production in April may not be so strong as projected, but its recovery trend is intact, accompanied by ups and downs,” METI said.
- METI maintained its recent assessment, saying, “Production is picking up.” The ministry continued urging a close watch on the developments in new coronavirus infections and supply chain recovery.
- In February, shipments fell 1.5% on month, the first drop in two months after rising 3.2% the previous month, while inventories marked the first drop in three months, down 1.0% after being flat in January. The inventory index was at 94.3 (100 in 2015), matching the level seen in November, the lowest during the current cycle.
Government Sees Signs of Pickup; Exports Slower, Spending in Weak Tone
Last week, Japan’s government maintained its overview on the domestic economy, which has been gradually moving out of the pandemic-caused slump, while noting exports were losing some steam, according to its monthly report released by the Cabinet Office.
The government said “signs of a pickup remain in place, although there is weakness in some areas.” In February, it downgraded its overall assessment for the first time in 10 months by adding the part about the weakness.
It revised down its view on exports for the first time in 10 months, saying they are increasing “at a slower pace.”
Japanese exports posted the first year-on-year drop in three months in February, down 4.5% vs. a 6.4% jump in January, partly in reaction to rush shipments to Asia in January before the Lunar New Year holidays last month, but the pickup trend in exports appears to be intact, backed by solid Chinese recovery demand, according to Ministry of Finance data.
But shipments of automobiles, which had initially led a pickup in exports, dipped for the fourth straight month as chip shortages are forcing Japanese carmakers to trim production.
The government maintained its assessment of private consumption, saying it “has been in a weak tone,” after downgrading it for the third straight month in February.
Spending on some services, such as eating out and traveling, has been slow amid the government call for shorter business hours and more strict stay-home lifestyles. Household expenditures on goods remains solid as demand for home office furniture and appliances is strong and people are cooking more at home during the pandemic.
Prime Minister Yoshihide Suga has ended a state of emergency in Tokyo and the neighbouring three prefectures, effective March 21, amid concern that big cities may be hit by a fourth wave of new coronavirus cases.
The government is still urging people to stay home as much as possible while bars and restaurants are asked to close by 9 p.m., an hour later than during the latest state of emergency declared in January.
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Contact this reporter: max@macenews.com.
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