Japan's factory output dropped sharply in August, casting doubt on the country's economic recovery trajectory. The Ministry of Economy, Trade and Industry (METI) reported a 3.3% decline in industrial output from the previous month, significantly worse than the expected 0.9% drop. The fall was primarily driven by typhoon-related disruptions in motor vehicle production and weak US sales, highlighting challenges for Japan's export-reliant economy.
Motor vehicle production plummeted 10.6% in August, as Typhoon Shanshan forced several automakers to suspend operations. Certification scandals also contributed to the decline, with production halts for three domestic models. Analysts attributed part of the slump to weak auto sales in the US.
The production machinery sector also took a hit, with chip-making machinery production falling 18.7% month-on-month, largely due to weaker overseas demand, particularly a sharp drop in exports to Taiwan.
Although manufacturers are forecasting a 2.0% increase in output for September and a 6.1% expansion in October, these predictions are often more optimistic than actual outcomes. Even with projected growth, the overall July-September output is expected to be lower than the previous quarter.
Meanwhile, Japanese retail sales rose 2.8% year-on-year in August, surpassing market expectations, driven by steady wage growth that supported consumer spending. However, soft demand in China and slowing US growth continue to pose risks for Japan's economic outlook.
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