Japan July Industrial Production Slips on Sluggish Silicon Demand, Prompting METI to Downgrade View

–METI Survey: Output Likely to Dip Further in August, Post Modest Rise in September  

–METI Sees Output Making One Step Forward, One Step Back Vs. Showing Signs of Gradual Pickup

–METI To Watch Effects of Downside Risks to Global Growth, Inflation

By Max Sato

(MaceNews) – Japan’s industrial production slipped back on the month in July after rebounding in June, hit by weaker global and domestic demand for semiconductor-producing equipment and despite continued recovery in the auto industry, preliminary data released Thursday by the Ministry of Economy, Trade and Industry showed.

From a year earlier, factory output marked the first drop in three months. 

The METI’s survey of producers indicated that output is expected to dip further in August before posting a modest rebound in September.  

The ministry downgraded its assessment for the first time in eight months after upgrading it April for the March data, saying industrial output is “making one step forward and one step back.” It is a setback form the previous state that output was “showing signs of a gradual pickup.”

The METI said it will keep a close watch on the effects of downside risks to global economic growth and a rise in prices, warning about the drag from high interest rates in major economies except for Japan and China’s slow recovery from its pandemic slump. It removed the effects of materials supply shortages from its watch list.

The key points from the data:

* Industrial production fell a seasonally adjusted 2.0% on the month in July, coming in weaker than the median economist forecast of a 1.4% fall (forecasts ranged from 2.9% to 0.5% drops). It followed a 2.4% rise (revised up from 2.0%) in June, a 2.2% drop in May, a 0.7% rise in April, a 0.3% gain in March, a 3.7% rebound in February and a 3.9% dip in January.

* Of the 15 industries, 10 posted decreases from the previous month and five marked increases. The decrease was led by lower output of production machinery (semiconductor-making equipment), electronic parts and devices (memory chips) and electrical machinery (air conditioners). Production of aircraft parts and passenger cars rose on the month.

* Based on its survey of manufacturers, METI projected that industrial production would rise 2.6% on the month in August (revised up from a 1.1% rise forecast last month) and gain 2.4% in September. Adjusting the upward bias in output plans, however, METI forecast production would fall 1.4% in August.

* From a year earlier, the production index slumped 2.5% in July after being flat (revised up from a 0.4% drop) in June and rising 4.2% in May, which was the first increase in seven months. It was weaker than the median economist forecast of a 1.9% fall (forecasts ranged from 2.3% to 1.1% drops).

* The index of industrial production (100 = 2020) stood at 103.6 in July, down from a revised 105.7 in June. It is well above the recent bottom of 87.6 hit in May 2020 but below 108.8 seen in January 2020, when the pandemic hadn’t had a widespread impact yet. The index briefly jumped to 108.8 in April 2021, 109.0 in June 2021 and 107.8 in August 2022.

* 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 2021. Output has since fluctuated widely, ending fiscal 2022 to March 2023 with a slight 0.3% drop on the year following a 5.5% jump in fiscal 2021 and a 9.5% slump in fiscal 2020.