Japan’s manufacturing sector witnessed its most significant decline since May 2020, as per government data released on Thursday, heightening concerns about the nation’s delicate economy, which slid into recession late last year.
The Ministry of Economy, Trade and Industry (METI) data revealed a 7.5 percent decrease in industrial production in January compared to the previous month, slightly worse than the market’s anticipated 7.3 percent decline.
The downturn affected 14 out of 15 industries surveyed by METI, leading the ministry to downgrade its assessment of industrial output for the first time since July last year.
Gabriel Ng, an assistant economist at Capital Economics, voiced worries about the ramifications of the sharp industrial production decline. Reuters quoted him as saying, “The plunge in industrial production in January suggests that GDP will fall yet again this quarter, which will add to the view that Japan’s economy is in recession.”
Analysts fear that Japan’s economic recovery might be stalling, especially with the manufacturing sector facing challenges.
The automotive industry bore the brunt of the production downturn, with motor vehicle output plummeting by 17.8 percent in January compared to the previous month.
This decline was attributed to decreases in regular passenger cars and electrical drive systems production.
Toyota Motor, a leading Japanese automaker, halted shipments of certain models in January due to irregularities found in certification tests for diesel engines developed by affiliate Toyota Industries.
Additionally, Toyota’s small-car unit Daihatsu continued to suspend production at domestic plants following misconduct related to collision-safety tests.
The gradual resumption of operations by Daihatsu this month indicates efforts to address these challenges.
Kota Suzuki, an economist at Daiwa Securities, highlighted the significance of the slump in automobile-related production, stating its impact on the broader Japanese economy.
Suzuki stated, “The drop in automobile-related production, which had remained exceptionally strong amid stagnant (industrial) production due to weak global demand for goods, is a major blow to the Japanese economy.”
The decline extended beyond the automotive sector, with manufacturing of electrical machinery and information and communication electronics equipment also experiencing an 8.3 percent decrease.
Despite the January outlook, manufacturers surveyed by the industry ministry anticipate a rebound in production in the upcoming months.
Forecasts suggest a 4.8 percent increase in seasonally adjusted output for February and a further 2.0 percent rise in March.
However, these projected gains may not fully offset the impact of January’s decline, according to a METI official.
Meanwhile, uncertainties persist over the potential effects of a powerful earthquake that struck Japan’s Noto Peninsula on New Year’s Day, with its impact on manufacturers’ plans yet to be fully understood.
In a separate report offering a glimmer of hope, Japanese retail sales rose by 2.3 percent year-on-year in January, marking the 23rd consecutive month of increases and aligning with market expectations.
The resilience of retail sales provides some optimism that consumption may help alleviate pressure stemming from the downturn in the industrial sector, offering a potential avenue for economic recovery.
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