Japan factory output unexpectedly falls as exports of cars to US slow

By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's industrial output unexpectedly fell in January for the first time in six months, pressured by a slowdown in shipments of cars to the United States in a sign of an economy grappling for a more sure-footed recovery.

While Asian exports, including Japanese sales, have started to recover from late last year, the jury is still out on whether the uptick is sustainable in the wake of rising protectionism in the United States.

Data by the Ministry of Economy, Trade and Industry on Tuesday showed industrial output fell 0.8 percent in January, versus a median market forecast for a 0.3 percent increase and a revised 0.7 percent gain the previous month.

It was the sharpest month-on-month decline since May 2016, and the outlook allowed for little cheer as manufacturers surveyed by the ministry tipped output to rise 3.5 percent in February and then decrease by a bigger 5.0 percent rate in March.

"Factory output will probably slow down this quarter as a reaction to solid production in October-December," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

"Still, output is likely to remain in a moderate pickup backed by IT-related demand for smart phones in China and economic recovery in the United States and Europe as well as resource-exporting countries and emerging markets, although uncertainty remains over the outlook on U.S. economic policies."

Separate data by the ministry showed Japanese retail sales rose 1.0 percent in January on-year, versus expectations for a 0.9 percent gain.

That was the third straight month of annual gains, indicating a gradual pickup in consumer spending.

TRUMP UNCERTAINTY

Japan's economy grew an annualised 1.0 percent in October-December, slowing from 1.4 percent in the third quarter.

Faced with a slow recovery and tepid consumer prices, the Bank of Japan revamped its policy framework in September last year to one better suited for a long-term battle with deflation, after three years of aggressive asset purchases failed to accelerate inflation to 2 percent.

The ministry maintained its assessment on industrial output, saying production was picking up.

But that view had to be squared off by evidence showing momentum in the world's third-largest economy remained soft, underscoring a fragile recovery and an uncertain outlook.

The worry for Japan - and policy makers globally - is the uncertainty over the economic policies of U.S. President Donald Trump, whose repeated pledges to pull back from free trade have raised concerns that protectionism will spread.

The ministry said factories curbed production due in part to a slowdown in shipments of cars to the United States, where Trump has ratcheted up his criticism of major nations, including Japan, for stealing U.S. jobs.

Last month, Trump took aim at Toyota Motor Corp, warning the world's largest automaker that it would face a "big border tax" if it exported Mexico-built cars to the U.S. market.

Data this month showed Japan's exports to the U.S. fell 6.6 percent in January from a year ago, extending a largely weak trend for shipments to the world's largest economy seen through much 2016.

(Reporting by Tetsushi Kajimoto; Editing by Randy Fabi & Shri Navaratnam)