Japan May factory output tops expectation, but trade risks linger

Japan May factory output tops expectation, but trade risks linger
FILE PHOTO: Smoke rises from a factory during sunset at Keihin industrial zone in Kawasaki, Japan, January 16, 2017. REUTERS/Toru Hanai/File Photo -
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Toru Hanai(Reuters)
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By Daniel Leussink

TOKYO (Reuters) – Japan’s industrial output rose for a second straight month in May, offering a much-needed sign that growth is holding up despite worries the world’s third-largest economy remains severely pressured by slower domestic and external demand.

Trade ministry data on Friday showed factory output rose 2.3% in May from the previous month, compared with a median market forecast of 0.7%. April saw a 0.6% rise.

Output rose at the fastest month-on-month pace since February 2018, the data showed.

It was pushed up by increased production of cars and machines used to make flat panel displays, offsetting a decline for airplane parts, according to the data.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to fall 1.2% in June but increase 0.3% in July, the data showed.

Friday’s data batch follows a set of tepid indicators in recent weeks, including exports – which fell for a sixth month in May – and a manufacturing activity gauge, suggesting the economy is feeling increased pain from slower global growth.

Pressure on the economy from weakening demand on the back of U.S.-China trade tensions has taken a toll on domestic growth, and threatens to further squeeze margins of Japanese firms.

The standoff between Washington and Beijing – front and centre at the Group of 20 summit opening Friday in Osaka – has weighed on Chinese growth. That, in turn, hurts Japan because many of its producers rely on selling heavy machinery and electronic parts to Chinese factories.

MOREBOJSTIMULUS?

The latest data comes as the Bank of Japan (BOJ) is considering ramping up stimulus as global trade and growth risks cloud the outlook for Japan’s export-reliant economy.

BOJ Deputy Governor Masazumi Wakatabe on Thursday warned of growing economic risks from the U.S.-China trade war, reinforcing market expectations the central bank’s next move could be for additional easing.

The BOJ kept monetary policy steady last week.

The central bank’s closely-watched “tankan” survey, due on Monday, is expected to show big manufacturers’ sentiment likely worsened to nearly three-year lows in the June quarter, in the wake of the demand slowdown at home and abroad.

Separate data on Friday showed Tokyo’s core consumer prices (CPI) index, which includes oil products but excludes fresh food prices, rose 0.9% in June from a year earlier, compared with a 1.1% increase in May.

The jobless rate stood steady at 2.4% in May, while the availability of jobs slipped, government data showed.

The jobs-to-applicants ratio fell to 1.62 in May, slightly down from April and the median estimate of 1.63.

(Reporting by Daniel Leussink; Editing by Richard Borsuk)

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