October saw a higher-than-expected increase in industrial production in Japan, providing new evidence of the country’s economic resilience as improved supply chains supported automakers and inventory adjustments supported the electronics parts sector.
The industry ministry announced on Thursday that factory output increased by 1% from the previous month, exceeding economists’ predictions of a 0.8% gain. Production rose 0.9% from the previous year, exceeding forecasts by the same margin.
Retail sales reversed three months of gains in October, falling 1.6% from September to October, according to a separate report released on Thursday. The reading was predicted by economists to rise by 0.4%. Sales exceeded predictions by 4.2% from a year ago. October saw an acceleration of inflation for the first time in four months, which led to households cutting back on discretionary spending.
A portion of the production increase was attributed to the recovery of global supply chains. According to trade data for October, a significant increase in car shipments, particularly to the United States, was a major factor in Japan’s export growth. Despite Toyota Motor being forced to temporarily halt operations at some plants due to an explosion at a component supplier’s factory, the auto sector’s output increased by 2% in comparison to the previous month.
General machinery and electronic devices were among the other beneficiaries.
In October, auto inventories rose 5.5% over September levels, which could indicate future drops in that industry’s output. Overall stock levels increased by 0.8%.
“I doubt production will pick up further from here given the mixed conditions in the U.S. and European economies,” stated Harumi Taguchi, principal economist at S&P Global Market Intelligence. “An improvement in electronics parts boosted production as inventory adjustments take place globally.”
Resilient corporate activity is the backdrop against which the output advance occurs. According to a Bank of Japan report released in October, confidence among the country’s major manufacturers increased more than anticipated in September compared to three months earlier, while sentiment among nonmanufacturers reached its highest level in thirty-two years. The rising demand for Chinese chip manufacturing equipment is one of the factors supporting the mood.
Large manufacturers are benefiting from the weakening yen, which is also increasing the spending power of tourists who are returning in large numbers. This is helping a variety of businesses in the services sector.
The number of foreign visitors returned to pre-pandemic levels in October, indicating that resilient consumption by inbound tourists helped sustain growth in retail sales. The recovery in foreign arrivals, which has been a consistent bright spot for Japan’s economy since travel restrictions during the pandemic were loosened, may not last forever, according to some economists, who believe it has nearly peaked.
The Bank of Japan will have access to new data on Thursday as officials evaluate the economy’s proximity to attaining a positive wage-price growth cycle.
In its October Outlook report, the BOJ observed that while production and exports have been impacted by a slowdown in the rate of recovery in foreign economies, they have remained relatively stable due to a waning of supply-side constraints.
December will mark the central bank’s last policy meeting of the year. Most BOJ viewers anticipate no changes.