Japan’s factory production in February rises for the first time in three months

Factories line the Osaka port
FILE PHOTO: Factories line the port of Osaka, western Japan, October 23, 2017. REUTERS/Thomas White

March 31, 2022

By Daniel Leussink

TOKYO (Reuters) – Japanese factories posted their first increase in output in three months in February as resilience in global demand led to a rebound in auto production, a welcome sign for policymakers hoping to keep the country’s fragile economic recovery on track .

However, the increase was smaller than market expectations, underscoring the ongoing impact of supply chain constraints and other risks such as rising raw material costs.

Factory production rose 0.1% mom in February, official data showed on Thursday, as rising production of cars and transportation equipment offset a decline in chemicals.

This meant that production returned to growth after falling 0.8% in January and 1.0% in December. The rise was weaker than a 0.5% earnings forecast in a Reuters poll of economists.

The outlook for the world’s third largest economy has clouded after energy and commodity prices soared following last month’s Russian invasion of Ukraine. Commodity prices have soared, burdening exporters with higher input costs, while supply chain disruptions have increased.

“The situation in Ukraine is likely to further exacerbate parts shortages,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research.

“It feels like there is a risk that the production recovery will be further delayed.”

Japanese automakers and suppliers are also facing headwinds from coronavirus-related disruptions in China, the world’s largest market.

Data on Thursday showed that production of autos and other motor vehicles rose 10.9% mom in February, recovering after a sharp drop in January as pressure from parts shortages eased.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected production to rise 3.6% in March and 9.6% in April.

However, those forecasts did not factor in production disruptions caused by a powerful 7.4 magnitude earthquake that struck off the northeast coast of Japan on March 16 and prompted plant closures at Toyota Motor Corp and other companies.

Japanese companies’ production plans for the coming months are increasingly overly optimistic, said Tom Learmouth, Japan economist at Capital Economics, highlighting potential risks for the next quarter.

“New headwinds from potential supply chain disruptions in Russia and China could put the handbrake on Japanese industrial production and delay a recovery until later in the year.”

(Reporting by Daniel Leussink; Editing by Sam Holmes and Lincoln Feast.) Japan’s factory production in February rises for the first time in three months


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