Japan factory output rises 8.9% in June as supply issues ease

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Japan factory output rises 8.9% in June as supply issues ease

Japan's factories increased output at the fastest pace in more than nine years in June as disruptions due to China's COVID 19 curbs eased, which is a welcome sign for policymakers who hope the economic outlook will improve.

In June, factory output increased a seasonally adjusted 8.9% from a month earlier, posting the biggest one month rise since comparable data became available in February 2013, official data showed on Friday.

The lifting of a strict COVID lockdown in Shanghai resulted in a tailwind to the Japanese output of motor vehicles, electrical machinery and electronic parts and devices.

A 14.0% month-on-month rebound in car production drove the increase as parts shortages resulting from the Shanghai lockdown eased, said Marcel Thieliant, senior Japan economist at Capital Economics.

A government official said downside risks for output remained as parts supply delays lingered, despite the fact that the advance was larger than the 3.7% gain expected by economists in a Reuters poll.

The data comes a day after Toyota Motor Corp said it produced 793,378 vehicles globally in June, slightly above a target it had cut twice and capping a quarter that saw the company slip 9.8% behind its production plan.

The world's largest automaker by sales has struggled to meet its global production goals in recent months due to chip shortages and disruptions caused by the lock-downs in China. The global economy and manufacturing are slowly coming to an end. But Japanese production hasn't normalized yet, said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

Its recovery momentum is going to go as supply constraints are lessened. The government said it was moving back and forth in its assessment of industrial production.

According to the Ministry of Economy, Trade and Industry, METI expects to extend its recovery by 3.8% in July and 6.0% in August.

Retail sales were less than expected, rising 1.5% in June from a year earlier, compared to a median forecast for a 2.8% gain in a Reuters poll.

Private consumption, which makes up more than half of the economy, held up in the second quarter.

Growing inflationary pressures and a recent surge in COVID 19 infections could lead to households tightening purse strings over the coming months, according to Tsunoda. In July, Tokyo's core consumer prices, excluding volatile fresh food but including energy costs, increased by 2.3% from a year earlier, overshooting the Bank of Japan's inflation target for a second month.

Consumer sentiment will be weighed down by the fact that prices will continue to rise over the summer months, according to Tsunoda.

The unemployment rate was 2.6% in June, unchanged from the previous month, while the index gauging job availability was 1.27 in June, slightly higher than 1.24 in May.