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Japan Factory Output Stalling After Helping Economy Rebound

Industrial output edged down 0.1 percent from a month earlier, falling for the seventh time in the last nine months.

Japan Factory Output Stalling After Helping Economy Rebound
A railway track runs through a chemical plant in the Keihin industrial area of Kawasaki City, Kanagawa Prefecture, Japan. (Photographer: Noriko Hayashi/Bloomberg) 

(Bloomberg) -- Japan’s factory output dropped again in December, fueling concern that a moderately rebounding economy is facing strong headwinds as weakness in Chinese growth and the U.S-China trade war hit global demand.

Industrial output edged down 0.1 percent from a month earlier, falling for the seventh time in the last nine months, according to economy ministry data released Thursday. The fall was smaller than economists’ median estimate of a 0.5 percent drop.

Japan Factory Output Stalling After Helping Economy Rebound

Key Insights

  • December’s industrial output is one of last key pieces of data used to determine how the economy fared in the fourth quarter following the biggest contraction since 2014 in the three months through September.
  • Despite the fall in December, overall factory output rose by 1.9 percent in the fourth quarter for the biggest gain in nearly five years, largely on the back of a surge in October that marked a recovery from natural disasters the previous month. That supports economists’ view of a modest rebound in overall growth in the last three months of 2018.
  • Momentum in production is likely to show continued weakness in early 2019, given sluggish exports affected by the U.S.-China trade fight and China’s slowdown. Early PMI data for January points to a sharp scaling back of output.
  • Any weakness in the economy will be a concern for Prime Minister Shinzo Abe prior to a scheduled sales tax increase in October. A previous hike in 2014 caused a sharp contraction

What Our Economist Says ...

Industrial production fell less than expected and remains at a high level, but weakness in key areas, particularly China-bound goods including mobile phone parts, warrants caution, said Bloomberg Economics’ Yuki Masujima. "An increase in inventories and weaker demand from China suggest production has room to fall. That was also the early signal from PMI data, which pointed to a drop in 1Q."

--For more, see our JAPAN REACT

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  • Output decreased 1.9 percent from the same period a year earlier, compared with an estimate of a 2.3 percent drop.
  • Japan’s economy ministry sees output falling 0.1 percent in January before rising 2.6 percent in February.

--With assistance from Toru Fujioka and Emi Urabe.

To contact the reporter on this story: Yuko Takeo in Tokyo at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Paul Jackson

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