Japan Production, Retail Sales Plunge as Virus Slams Demand

(Bloomberg) -- Japanese factory output dropped in April by the most since the 2011 tsunami and retail sales slid sharply as the coronavirus froze demand at home and abroad and the recession deepened.

Industrial production fell 9.1% from March, dropping for a third month led by falls in auto and steel output, the trade ministry reported Friday. Economists forecast a 5.7% drop. Retail sales fell 9.6% from a month earlier amid shutdowns that kept shoppers home. The projection was for a 6.9% decline.

Unemployment rose less than expected. Analysts said resilience so far in Japan’s jobless rate masks an exodus of people from the labor force and continuing declines in factory production could start to trigger more manufacturing layoffs in the months ahead.

Key Insights

• Friday’s raft of data comes after Prime Minister Shinzo Abe’s government this week unveiled a $1.1 trillion economic package, doubling the total size of Japan’s virus responses to about 40% of the country’s gross domestic product.
• With the state of emergency having been lifted nationwide on Monday, the question now shifts to how quickly businesses can resume activity. Economists see the economy shrinking more than 20% this quarter, the most in records going back to 1955, and say a rebound could be slow as exports, tourism and business investment struggle to rebound.
• “A V-shaped recovery is impossible,” said economist Harumi Taguchi at IHS Markit. “As the impact of the coronavirus lingers, jobs and incomes will suffer a lot. This is a dire situation. If production continues to be scaled back, we may see job losses in manufacturing, too.”
• Abe’s approval ratings have fallen, so continued weakness in the economy is likely to keep pressure on him to add more stimulus. Some analysts expect a third or even a fourth extra budget will be needed this year.
• Bank of Japan Governor Haruhiko Kuroda has pledged to do whatever is needed to support the economy, but Friday’s data are unlikely to raise the odds of additional easing anytime soon because the results were broadly in line with expectations.

What Bloomberg’s Economist Says

“One million jobs in Japan vanished in April -- striking evidence of the economic damage from the coronavirus. And April was still early days in the crisis. The number of people seeking work also edged up. The net effect -- a slight rise in the unemployment rate. Our takeaway -- a lot people lost jobs in April and didn’t look for new positions.”

--Yuki Masujima, economist

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• Tokyo’s consumer prices excluding fresh food unexpectedly rose 0.2% in May, compared with a median analyst estimate for a 0.2% decline. Prices of hotel and overseas tour packages fell by less than in the previous month, to drag less on the overall index, while mobile phone prices went up by 3.5%
• The jobless rate ticked up 0.1 percentage point to 2.6% in April. Analysts expected 2.7%.
• The jobs-to-applicant ratio worsened to 1.32, meaning there were 132 job offers for every 100 applicants. The figure has dropped four months in a row, the longest streak of declines since the 2009 financial crisis. Yet, jobs still far outnumber applicants.
• Retail sales declined 13.7% in April from a year earlier. The government placed the country under a state of state of emergency in mid-April.

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