Japan's factory output drops steeply in May amid Covid-19 emergency

TOKYO (BLOOMBERG) – Japan’s factory output slid in May, dropping for the first time in three months, as the economic damage from renewed virus restrictions at home outweighed the momentum from rebounding exports.

Industrial production fell 5.9 per cent from April, the trade ministry reported on Wednesday (June 30). Economists had expected a 2.1 per cent drop.

Japanese production reversed gains amid a renewed state of emergency that lasted the entire month and dented domestic demand.

With consumers held back by continued restrictions to contain the virus, the economy needs solid factory output and exports this quarter in order to eke out growth after shrinking in the first three months of the year.

Japan’s accelerating vaccination drive is likely to fuel a recovery in consumer spending next quarter that should also help lift manufacturing.

Thursday’s Tankan survey by the central bank is forecast to show sentiment among big product makers jumping as companies start to see past the pandemic. Drops in the yen have also boosted exporter profitability.

Yuki Masujima, economist for Bloomberg Economics, said: “Looking ahead, we expect production to rise in June. The lifting of the state of emergency on June 20 probably relieved downward pressure.”

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