Japan’s factory output soars as car production returns

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Japan’s factory output soars as car production returns
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Economy4 hours ago (Dec 27, 2021 11:45PM ET)

Japan's factory output soars as car production returns
© Reuters. FILE PHOTO: A worker walks near a factory at the Keihin industrial zone in Kawasaki, Japan February 28, 2017. REUTERS/Issei Kato

By Daniel Leussink

TOKYO (Reuters) -Japan’s factory output jumped at the fastest pace on record in November, as easing global supply chain bottlenecks helped car production leap out of its recent slump, lifting prospects for a strong fourth-quarter economic rebound.

But while improved manufacturing conditions provide some relief for policymakers, persistent global semiconductor shortages and new risks from the Omicron coronavirus variant are expected to cloud the outlook for the world’s third-largest economy.

Factory production gained 7.2% in November from the previous month, posting its largest jump since 2013 when comparable data first became available, thanks to rising output of motor vehicles and plastic products.

That meant production rose for the second straight month after increasing 1.8% in October and posted a faster rise than the 4.8% gain expected in a Reuters poll.

“Output recovered to where it was previously because car production rebounded,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“But seen from a global perspective, supply bottlenecks and especially the chip shortage are likely to be prolonged so that will slow down the recovery pace of output.”

The data showed output of cars and other motor vehicles surged 43.1% from the previous month in November, also a record, while plastic products production rose 9.5%.

Despite the stronger output, Japanese automakers are still unable to completely shake off the drag from persistent global parts and chip supply issues.

Japan’s top automaker Toyota Motor (NYSE:) Corp said last week it would suspend production at five domestic factories in January due to supply issues and the health crisis.

Analysts say the auto sector could see a prolonged impact from chip supply snaps as chipmakers focus on producing cutting-edge semiconductors over less advanced chips.

“What is required for cars aren’t the state-of-the-art chips,” said Chihiro Ohta, general manager for investment research and investor services at SMBC Nikko Securities. “They need old-generation models.”

Manufacturers expect output to rise 1.6% in December and 5.0% in January.

However, a Ministry of Economy, Trade and Industry (METI) official cautioned firms’ forecasts in the monthly survey tended to be overly optimistic.

Output of durable consumer goods rose 39%, while that of capital goods, which analysts say is closely related to the capital spending component in gross domestic product (GDP), was unchanged from the previous month.

More broadly, analysts expected Japan’s economy will grow an annualised 6.1% in the current quarter, rebounding from a third-quarter slump with consumer and corporate activity expected to recover, a Reuters poll showed this month.

Separate data on Tuesday showed the jobless rate rose to 2.8% from the previous month’s 2.7%, while an index gauging job availability was at 1.15, unchanged from October.

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