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(Bloomberg) — Japan’s factory output picked up more than expected in September as car output recovered as the economy continued its sputtering recovery with policymakers watching developments with concern.
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Industrial production gained 1.4% from August, led by cars and chemical product makers, the Industry Ministry reported on Thursday. That beat a consensus estimate for a 0.8% increase, but output was still down 2.8% from a year ago.
For the third quarter, production slipped 0.4% from the previous period, potentially weighing on last quarter’s growth. The ministry also reported retail sales fell 2.3% in September from August, leaving them up only 0.5% from a year ago.
While the September figures were a little stronger than forecast, production last quarter was weak, and uncertainty over domestic and overseas demand clouds the outlook. Prime Minister Shigeru Ishiba has pledged to put together an economic stimulus package bigger than last year’s to help households deal with inflation and spur growth.
The Bank of Japan, which wraps up a meeting later Thursday, will also scrutinize the figures as it tries to assess if the economy is strong enough to withstand another interest rate hike in the coming months. The BOJ is widely expected to hold rates at its latest meeting.
“Production was positive partly thanks to the recovery of the automotive sector,” said Yuichi Kodama, economist at Meiji Yasuda Research Institute. “But it’s also true that overall, figures have been lackluster in recent months. This has a lot to do with the uncertainties in overseas economies, especially in China.”
Factory output in Japan picked up in September partly because the auto sector continued to recover from the impact of regulatory standards involving falsified vehicle safety certifications. Still, falling external demand feeds into uncertainties over the likely strength of production going forward.
While factory output is forecast to rise 8.3% in October, it is then seen falling 3.7% in November, and the ministry’s projections tend to be optimistic.
What Bloomberg Economics Says…
“The rebound in Japan’s industrial production in September shows the manufacturing sector got back on a solid track after a setback the previous month caused by a typhoon and a megaquake alert from the government.”