Japan factory output drops 7.2% in May on supply shortages

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Japan factory output drops 7.2% in May on supply shortages

TOKYO Reuters-Japan's factory output posted the biggest monthly drop in two years in May, as China's COVID 19 lockdowns and semiconductor and other parts shortages hit manufacturers, adding to worrying signs of an economy struggling to mount a strong recovery.

The decline highlights the challenges that the world's third-largest economy faces in overcoming supply disruptions and high prices of raw materials and energy.

In May, factory output fell a seasonally adjusted 7.2% from the previous month, official data showed on Thursday, as production of items such as cars as well as electrical and general-purpose machinery fell sharply.

The decline, which was the sharpest monthly decline since a 10.5% month-on-month drop in May 2020, was much larger than the 0.3% fall predicted by economists in a Reuters poll.

Marcel Thieliant, a senior Japan economist at Capital Economics, said the plunge in industrial output in May suggests that Japan's recovery is disappointing yet more.

The conventional wisdom is that supply shortages are the main culprit, he added. The fact that inventories were stable despite plunging output suggests that weak demand is playing a role. The data came on a day after Toyota Motor Corp, the world's largest automaker by sales, said it missed its already downgraded global production target for May.

Toyota produced 634,940 vehicles last month compared to its target of 700,000, which it had lowered by 50,000 from 750,000 in mid-April due to the pandemic curbs in Shanghai.

In Japan's services sector is picking up thanks to a modest post-pandemic spending rebound, while the country's manufacturing sector is facing pressure from parts and high-tech chip supply disruptions.

The government said it was weakening its assessment of industrial production.

In June, the Ministry of Economy, Trade and Industry surveyed by the Ministry of Economy, Trade and Industry, METI expected output to rebound 12.0%, followed by a 2.5% expansion in July.