More Doubts over Domestic Demand as Japan Industrial Output Declines

Japan’s industrial output fell in February at the fastest pace in eight months due to declines in production of machinery, cars and electronics in a worrying sign that domestic demand could be faltering.  Economists were already braced for a fall as many companies were expected to trim output due to the timing of Lunar New Year holidays, but the 3.4 percent month-on-month decline in February was much worse than expected at almost double the median estimate for a 1.8 percent fall.

Manufacturers’ forecasts for the coming months still point to a gradual recovery in output, but the outlook is less certain and could complicate the Bank of Japan’s task as the economy slowly rebounds from last year’s recession.  “These results are a little worrying, because the decline in auto output could be due to weak domestic demand,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“Output is still on course to recover, but another disappointing number makes this scenario less likely.”  February’s output slump was the biggest since June last year, when production also fell by 3.4 percent.  Manufacturers surveyed by the trade ministry expect output to fall 2.0 percent in March and rise 3.6 percent in April.