Japan factory output grows for 5th month, retail sales surge most in a year

Japan's industrial output rose for the fifth straight month in October and retail sales in the same month grew the most in over a year, signalling the economy was recovering from the Covid-19 crisis

By Daniel Leussink

TOKYO (Reuters) - Japan's industrial output rose for the fifth straight month in October and retail sales in the same month grew the most in over a year, signalling the economy was recovering further from the damage caused by the COVID-19 crisis.

The world's third-largest economy rebounded sharply in the third quarter from a pandemic-induced slump, thanks to surging consumption and exports, though some analysts worry about slowing growth ahead due to a resurgence in coronavirus infections.

"There's a possibility China-bound exports and output will be sluggish if the United States gets worse, and that would spread to China," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research.

"But if there will be any impact, it'll be with a bit of a time lag," he said, adding that Japanese manufacturers could feel it most strongly in the first quarter of next year.

Official data released on Monday showed factory output jumped 3.8% in October from the previous month, mainly due to strength in general machinery production and motor vehicle manufacturing.

The solid increase beat the median market forecast of a 2.1% rise in a Reuters poll of economists, and was in line with the prior month's 3.9% gain.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected output to grow another 2.7% in November and decline 2.4% in December.

"The overall figure was quite strong. (Output of) capital expenditure-related machinery such as general machinery production was picking up," Tsunoda said.

Inventories across all industries fell 1.6% in October, the seventh straight month of decline, as inventories of inorganic and organic chemicals as well as iron, steel and non-ferrous metals were reduced.

Separate data showed retail sales posted their largest gain since September last year in October year-on-year after consumers sharply curtailed spending in October 2019 following a sales tax hike at that time.

Retail sales jumped 6.4% year-on-year in October to rise for the first time in eight months, matching a 6.4% gain expected by economists in a Reuters poll and turning around from an 8.7% drop in the previous month.

Some analysts worry that the economic recovery will lose steam as a resurgence in coronavirus infections at home and abroad is expected to weigh on demand due to slowing corporate and consumer activity.

Prime Minister Yoshihide Suga instructed his cabinet earlier this month to compile a package of stimulus measures to speed up the country's economic recovery.

The package is expected to target structural changes, supporting environmental investment and boosting productivity through digitalisation.

Ruling party lawmakers have called for an extra budget worth around 20 trillion yen to 30 trillion yen ($192.05 billion to $288.07 billion), which will fund part of the stimulus package.

 

 

(Reporting by Daniel Leussink; Editing by Kim Coghill and Christopher Cushing)