Japan March Industrial Output Up Slightly on Reopening Demand Amid Easing Covid Effects

–METI Keeps View: Factory Output Shows Signs of Pickup

–METI: To Watch Effects of Pandemic, Parts Shortages, Inflation, Ukraine

By Max Sato

(MaceNews) – Japan’s industrial production posted the second straight month-on-month rise in March as reopening demand for chip-making equipment and other machines amid easing Covid effects offset a decline in auto output caused by a major earthquake in northeastern Japan, preliminary data released Thursday by the Ministry of Economy, Trade and Industry showed.

The METI’s survey of producers points to continued growth in output in April, backed by demand for production machinery, electric and telecommunications equipment and a rebound in automobiles, but factory operators expect a slight drop in May, with demand for production machinery taking a breather. 

The ministry maintained its assessment, saying output is “showing signs of a pickup.” The METI said it will keep a close watch on the drag from the pandemic on domestic and global growth as well as parts and materials supply shortages, rising prices and developments in the war in Ukraine, adding a reference to producer inflation that remains high above a 9% annual rate, close to a 41-year high.

The key points from the data:

* Industrial production edged up a seasonally adjusted 0.3% on the month in March, softer than the median economist forecast of a 0.5% rise. It was the second consecutive rise after a 2.0% gain (revised up from a 0.1% rise), a 2.4% slump (revised down from a 0.8% dip) in January, a 0.2% rise (revised up from a 1.0% fall) in December and a 5.0% jump (revised down from a 7.0% rise) in November. The METI conducted annual revisions to the data series, resulting in sharp changes in some figures.

* The increase was led by higher output of production machinery (chip-making equipment), chemicals (new products) and transport equipment excluding vehicles (aircraft parts). Output of vehicles slumped after a powerful 7.4 magnitude earthquake on March 16 forced automakers to suspend operations at some factories as their key parts suppliers sustained damage.

* Production rose 0.8% on quarter in the January-March period, posting the second straight quarterly gain after rising 0.2% (revised down from a 1.0% rise) in October-December and dipping 1.9% (revised up from a 3.7% drop) in July-September and rising 0.2% (revised down from a 1.1% rise) in April-June. In fiscal 2021 that ended in March, output rose 5.8% on year, the first rise in three years following decreases of 9.6% (revised from a 9.5% fall) in fiscal 2020 and 3.8% in fiscal 2019 and a 0.3% increase in fiscal 2018.

* Based on its survey of manufacturers, METI projected that industrial production would rise 5.8% on month in April (revised down from an 8.1% rise forecast last month) and fall 0.8 in May. Adjusting the upward bias in output plans, METI forecast production would rise 0.8% in April.

* The index of industrial production (100 in the 2015 base year) inched up to 96.5 in March. It was 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.

* 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 and December last year.

* From a year earlier, the index slid 1.7% in March after rising 0.5% (revised up from a 0.2% rise) in February, falling 0.8% (revised down from a 0.5% drop) in January and rising 2.2% (revised down from a 2.7% rise) in December. Production showed double-digit percentage year-on-year gains from April to July 2021 in reaction to the pandemic-depressed activity the previous year.

* Shipments rose 0.5% on month in March, the first rise in three months after being unchanged in February and falling 1.5% in January. Higher shipments of production machinery and aircraft parts, reflecting reopening demand, offset a decline in auto shipments. 

* Shipments of capital goods excluding transport equipment – a key indicator of domestic demand in GDP data – rose 1.4% on the month in March after falling 5.1% in February and rising 1.6% in January. In the first quarter of 2022, those shipments marked the third straight quarter-on-quarter decline, down 0.1%, after falling 1.5% in the final quarter of 2021 and slipping 0.7% in July-September.

* Inventories marked the first fall in two months, down 0.6% on the month in March after rising 2.1% in February, due largely to lower output at oil refineries.