Japanese factories posted their first increase in output in three months in February, as the resilience in global demand led to a rebound in car production, a sign for policymakers hoping to keep the country's fragile economic recovery on track.
The increase, however, was smaller than market expectations, underscoring the impact of supply chain bottlenecks and other risks, such as surging costs of raw materials.
In February, factory output increased by 0.1% from the previous month, according to official data released on Thursday, as the growing production of cars and transport equipment offset a decline in chemicals.
The output returned to growth after slipping 0.8% in January and 1.0% in December. The increase was weaker than the 0.5% gain predicted in a Reuters poll of economists.
The outlook for the world's third-largest economy has weakened after Russia invaded Ukraine last month and caused energy and commodity prices to go up. The price for raw materials has gone up, causing higher input costs for exporters, while supply chain disruptions have increased.
Takumi Tsunoda, senior economist at Shinkin Central Bank Research said that the situation in Ukraine is likely to worsen the parts shortage. There is a risk that the recovery in output will be delayed further. Japanese automakers and suppliers are facing a lot of disruptions due to the coronaviruses in China, the world's largest market.
The output of cars and other motor vehicles increased 10.9% from the previous month in February, rebounding after a sharp contraction in January as pressure from parts shortages eased.
In March, the Ministry of Economy, Trade and Industry said that the output of METI would increase by 3.6% and 9.6% in April.
The forecasts didn't take into account any output disruptions caused by a powerful magnitude 7.4 earthquake that struck off Japan's northeastern coast on March 16, which resulted in plant shutdowns at Toyota Motor Corp. and other firms.
Tom Learmouth, an economist at Capital Economics, said that Japanese firms' production plans for the months ahead are increasingly too optimistic.
There are fresh headwinds of potential supply chain disruption in Russia and China, which may keep the handbrake on Japanese industrial production, pushing back any rebound later in the year.