Slowing production of cars and electronics in January tipped Japan's industrial output into its biggest tumble since a devastating earthquake in March 2011, highlighting a weakening in demand and a build up of inventory. Separate data showed retail sales rose less than expected in January as shoppers cut back spending on clothes, cars, and appliances.
January's production data and a trade ministry compilation of company forecasts for output in February and March suggest that Japan's economy will expand more slowly this year, adding to pressure on policymakers to find new ways to stimulate growth. Slowing growth could also make companies and politicians even more sensitive to gains in the yen, which eat into exporters' profits and make companies less likely to invest or raise workers' wages.
The yen has risen around 5 percent versus the dollar this year, hitting a 15-month high of 106.30 on February 15. A "flash" preliminary reading also showed Japanese manufacturing activity expanded more gradually in February as growth of new export orders slowed due to the yen's appreciation, further emphasising the corporate sector's acute sensitivity to currency fluctuations.
"Japan's economy will grow this year, but not nearly as fast as it did last year. Japan's government will try to stop the yen from rising, but they also have to worry about trade friction," said Hiroaki Muto, economist at Tokai Tokyo Research Center. The trade ministry data out on Wednesday showed factory output fell 6.6 percent in January from the previous month. This was the biggest decline since a 16.5 percent fall in March 2011 and more than economists' median estimate of a 4.2 percent drop. Output rose 2.9 percent in December.
Output of cars and trucks fell by 14.1 percent in January because of weaker exports to the United States, a trade ministry official told reporters. Car output also fell because severe snowstorms in January delayed deliveries of parts, the official said.
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