Japan factory output tumbles in further gloom

TOKYO — Japan's industrial output last month slumped the most since the COVID-19 pandemic, government data showed on Thursday, adding to the gloom for the world's number four economy after going into recession in late 2023.

Output at factories and mines in January was down 7.5 per cent from the previous month — the largest month-on-month decline since May 2020, when covid brought global economies to a standstill.

"Many will attribute the poor January print to the Noto Peninsula earthquake which struck the northwest of Japan's main island on New Year's Day," said Stefan Angrick, senior economist at Moody's Analytics.

But "business forecasts for January had already turned sour by the end of December when a major Japanese car maker announced it would suspend production at one of its subsidiaries", he said.

Mini-vehicle specialist Daihatsu, a Toyota subsidiary, suspended its domestic production for weeks from late December over an embarrassing rigged safety test scandal.

"Adding to this, a series of attacks in the Red Sea hurt trade along a major shipping route connecting Asia to Europe," Angrick said.

Taro Saito at the NLI Research Institute said the "double effect" of the earthquake and auto scandals meant "production dropped sharply, not only in the auto industry but in a range of sectors".

Japan is spending $1.7 billion on rebuilding areas ravaged by the 7.5-magnitude earthquake on January 1, which killed 241 people and devastated parts of the Ishikawa region.

The January output data could also give the Bank of Japan pause as it navigates a move away from long-standing ultra-loose policies while trying to minimise shock to the economy.

"The poor reading adds to a series of disappointing data releases which will make it hard for the Bank of Japan to dial back monetary easing," Angrick said.

"All up, the outlook for the Japanese economy looks incredibly fragile."

The economy shrank 0.1 per cent quarter-on-quarter in the last three months of 2023 after a contraction of 0.8 per cent in the previous period, meaning that Japan was in technical recession in the second half of last year.