Japan’s Industrial Output Falls for First Time in Six Months

(Bloomberg) -- Japan's industrial production fell for the first time in six months in January, raising questions about the sustainability of Japan's export-driven growth in the second half of 2016. Retail sales rose.

Key Points

• Industrial production fell 0.8 percent in January from a month earlier (forecast +0.4 percent).
• Output is forecast to rise 3.5 percent in February and drop 5 percent in March.
• Retail sales rose 0.5 percent from a month ago (forecast +0.3 percent).

Big Picture

The unexpected weakness in industrial output points to the risk of depending on external demand for recent economic growth. While domestic consumption has been weak in Japan, net exports added to growth in the second half of 2016, and shipments rose in January for a second straight month.

Data on household spending are due on Friday along with labor market and inflation data.

Economist Comments

* "This is a reminder to be cautious for those who have been upbeat on Japan's economy," said Taro Saito, director of economic research at the NLI Research Institute. 
* "There has been optimism globally that production and exports will pick up," Saito said. "We saw strong car sales around the world at the end of last year and that led Japan's exports and production but the sales are not gathering speed."
* "I worry about the negative forecast for March, which calls for a 5 percent drop," said Masaki Kuwahara, senior economist at Nomura Securities Co., referring to industrial output. "That just makes you worry about the sustainability of the economic recovery.”
* Sluggish exports, including of autos, weighed on production in January, Kuwahara said.

Details

• The biggest contributor to the decline from December was the drop in production of cars, engines and other transport equipment, down 4.7 percent.
• That was followed by declines in output of chemicals such as soap and detergent, and industrial machinery.
• Measured year-on-year, industrial production rose 3.2 percent (forecast +4.3 percent)
• Retail sales rose 1 percent in January from a year ago (forecast +1.0 percent).

--With assistance from Tomoko Sato

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Henry Hoenig, James Mayger