Japanese factory production is declining in April, which is a worrying sign for the economy.  Reuters

Japanese factory production is declining in April, which is a worrying sign for the economy. Reuters

© Reuters. FILE PHOTO: Worker Rides Bicycle Near Factory in Keihin Industrial Zone, Kawasaki, Japan, February 28, 2017. REUTERS / Issei Kato

Daniel Leussink and Canterbury

TOKYO (Reuters) – Japanese factories saw a sharp drop in production in April as China’s COVID-19 blockade and wider supply disruptions took a heavy toll on manufacturers, clouding prospects for a trade-dependent economy.

Separate data shows that retail sales grew the most in almost a year as consumers boosted spending after the government eased pandemic measures, withstanding the pressure of wider price rises that threaten to threaten demand.

Factory production fell 1.3% in April from the previous month, official data on Tuesday showed, due to a sharp drop in production of products such as electronic parts and manufacturing machines.

It was the first drop in three months and much weaker than the 0.2% drop expected by economists in a Reuters poll.

The data comes a day later Toyota Motor (NYSE 🙂 Corp., the world’s largest carmaker by sales, missed its global production target for April after production fell by more than 9% from a year earlier.

Toyota’s decline in production last month came after the Japanese carmaker cut its global production plan for June on Friday and hinted at the possibility of cutting its year-round production plan of 9.7 million vehicles.

“Japanese production is likely to remain stalled in the short term as global supply chain disruptions continue,” said Kazuma Kishikawa, an economist at the Daiwa Research Institute.

A full recovery in the transport of goods from China is likely to take place even after Shanghai lifts a strict blockade on Wednesday due to COVID-19, Kishikawa said, adding that it is likely to affect Japanese production.

“Logistics will not be renewed in one day,” he added.

As activity in Japan’s services sector increases as the pandemic subsides, the country’s manufacturing sector is under pressure from supply disruptions and higher material prices caused by the Russian war in Ukraine.

“Mild activity data for April suggest that the recovery in the second quarter could be disappointing, although it is worth noting that they tell us nothing about the recovery in the service sector,” Tom Learmouth, a Japanese economist at Capital Economics, wrote in a note.

Producers surveyed by the Ministry of Economy, Trade and Industry (METI) expected production to return to growth in May, gaining 4.8%, followed by an improvement of 8.9% in June.

While production would be on track for a strong recovery this quarter if those forecasts come true, firms ’production plans are far more optimistic than usual, since supply shortages began to take their toll, Learmouth added.

Separate data show that retail sales grew by 2.9% in April compared to the year before, their biggest increase since May 2021. This was more than the average market forecast for growth of 2.6%.

The unemployment rate in April was 2.5% in more than two years, compared to 2.6% in the previous month.

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