TOKYO: Japan 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.
The factory output fell by a seasonally adjusted 7.2 per cent in May from the previous month, official data showed on Thursday, Jun 30 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 per cent month-on-month drop in May 2020, was much larger than the 0.3 per cent fall predicted by economists in a Reuters poll.
Marcel Thieliant, a senior Japan economist at Capital Economics said that Japan's recovery is disappointing yet again due to the plunge in industrial output in May.
Supply shortages are the main culprit, according to the conventional wisdom. The fact that inventories were stable despite plunging output suggests that weak demand is playing a role. The data comes 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 globally 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.
Japan's services sector is gaining ground thanks in part to a modest post-pandemic spending rebound, but the country's manufacturing sector is facing pressure from parts and high-tech chip supply disruptions.
The government cut its assessment of industrial production, saying it was weakening.
In June, the Ministry of Economy, Trade and Industry METI predicted output to rebound 12.0 per cent, followed by a 2.5 per cent expansion in July.