Japan factory output falls, casting doubts about pace of economic recovery

Japan's factory output tumbled last month driven by typhoon-led disruptions in motor vehicle production and weak U.S. sales, with the government and analysts cautioning about a subdued outlook that raises the hurdle for a solid economic recovery.

Industrial output fell 3.3 per cent in August from the previous month, data released by the Ministry of Economy, Trade and Industry (METI) on Monday showed, worse than a median market forecast for a 0.9 per cent drop.

"Taking into account overseas factors, it is difficult to expect a significant increase in production in the near future, and the pace of recovery will remain moderate," said Shungo Akimoto, market economist at Mizuho Securities.

Motor vehicles production dropped 10.6 per cent in August compared to a month ago, as Typhoon Shanshan forced a swath of automakers to suspend operations, a METI official said. Automaker's certification scandals, which led to the production suspension of three models domestically, also put downward pressure on output.

Weak auto sales in the U.S. might have also dented motor vehicle output, said Takeshi Minami, chief economist at Norinchukin Research Institute.

Production machinery also fell, including a chip-making machinery down sharply by 18.7 per cent month-on-month in August. The METI attributed the decrease to weaker overseas demand, with exports to Taiwan dropping significantly.

Although manufacturers surveyed by METI expect seasonally adjusted output to increase 2.0 per cent in September and expand 6.1 per cent in October, those production forecasts tend to come out stronger than the actual results.

The July-September output would be lower than the second quarter even if September output grows as anticipated, a METI official said.

"The weight on production was gradually being lifted, but there was a strong sense of uncertainty when we thought about whether we could have a bright outlook in the future," the official said.

Separate data showed Japanese retail sales rose 2.8 per cent in August from a year earlier, above the median market forecast for a 2.3 per cent rise.

Compared with the previous month, retail sales edged up 0.8 per cent in August, following a 0.2 per cent gain in July, the data showed.

Japan's economy expanded an annualised 2.9 per cent in the second quarter as steady wage hikes underpinned consumer spending. Capital expenditure continues to grow, though soft demand in China and slowing U.S. growth cloud the outlook for the export-reliant country.