May Factory Output in Japan Shows the Biggest Drop in 2 Years

May saw the biggest monthly drop in Japanese factory output in two years as manufacturers suffered the shortages of semiconductor and other parts brought by China’s Covid-19 lockdowns. This was yet another worrisome sign for an economy that has been struggling to recover.

Japan’s factory output fell 7.2% in May from April after seasonal adjustments were made, according to government data released on Thursday (30 June). This decline was due to a steep reduction in the production of automobiles, as well as electrical and general-purpose machinery.

The drop was far more than the 0.3% decline projected by economists in a Reuters survey, and it was the largest monthly reduction since the 10.5% month-on-month drop in May 2020.

“The plunge in industrial output in May suggests that Japan’s recovery is disappointing yet again,” said Marcel Thieliant, senior Japan economist at Capital Economics.

“The conventional wisdom is that supply shortages are the main culprit,” he added. “However, the fact that inventories were broadly stable despite plunging output suggests that weak demand is playing a role.”