Data indicate that Japan's industrial output decline in July exceeded expectations. This greater-than-anticipated decrease not only reflects the pessimistic outlook for China and the global economy but also suggests that Japanese manufacturers are facing a challenging start to the second half of the year.
According to data released by the Ministry of Economy, Trade and Industry (METI) on Thursday, despite a 2.4% month-over-month increase in Japan's industrial output in June, July saw a 2.0% decline, significantly surpassing the market's general expectation of a 1.4% decrease.
Trade data show that Japan's exports contracted for the first time in over two years, weighed down by weakened global demand for light crude oil and semiconductor manufacturing equipment.
METI officials mentioned that the output of semiconductor manufacturing equipment in machinery production dropped by 16.4%. Despite the output data not being bad compared to the past, considering factors like the economic growth prospects of China and the global economy, and the demand in the semiconductor industry, Japan's future semiconductor output and exports may face even sterner challenges.
Thanks to the extensive supply and sales networks of car manufacturers like Toyota and Honda, Japan's car production rose by 0.6%. Surveys by the Japanese industrial sector predict that car manufacturers' production in August will increase by 2.6%, with a 2.4% rise in September. However, industry insiders note that the industrial sector's forecasts tend to be overly optimistic, with actual figures often falling below predictions.
Masato Koike, an economist at SOMPO Institute Plus, believes that Japan's car production will continue to be weak due to the rise of China's new energy vehicles and a pessimistic economic outlook. Furthermore, he thinks that system failures at Toyota could lead to production declines exceeding expectations. On Tuesday this week, system failures at Toyota led to the shutdown of 14 assembly factories.
METI officials stated that China's real estate problems have somewhat affected Japan's market for construction materials, such as steel and plastics. Japan will continue to monitor changes in China's real estate and economic growth prospects, as well as how shifts in global demand affect various Japanese industries.
Other data show that thanks to Japan's economic growth, especially with the reopening of the tourism sector, Japan's retail sales in July increased by 6.8% year-over-year. This not only exceeded market expectations of 5.4% but also marked the 17th consecutive month of expansion since March 2022.
Moreover, the latest Reuters survey indicates that Japan's economy may contract by 1.2% in the third quarter, a prognosis significantly less favorable than the 6.0% growth in the second quarter.
