Japan’s July factory production slips as COVID-19 affects car production

Workers wearing protective face masks and face guards work on an automobile assembly line as new safety and health measures are taken as a step to resume full operations, during the outbreak of the coronavirus disease (COVID-19), in manufacturer Kawasaki Accelerates car production with The Mitsubishi Fuso Truck and Bus Corp factory, owned by Germany-based Daimler AG, in Kawasaki, south of Tokyo, Japan, on May 18, 2020. REUTERS/Issei Kato

  • July production falls below expectations
  • Lower car production offsets higher chip machinery output
  • Producers see production in August, September

TOKYO, Aug 31 (Reuters) – Japan’s industrial output shrank in July as car production was hit by a coronavirus resurgence in Asia that has cast doubt on the recovery in the world’s third-largest economy.

The spike in highly contagious delta-type cases has forced governments in Asia to impose new lockdowns and restrictions, which are causing parts supply disruptions across the region, adding to a global chip shortage.

“The risk output will stop at the end of the year,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

“Car production is likely to put pressure on production in August and September.”

Factory output fell 1.5% in July compared to the previous month, official data showed on Tuesday, as production of autos, including passenger cars and small buses, declined.

The decline offset increased production of production machinery items, such as semiconductors, and used to manufacture electronic parts and equipment.

That means output fell again from pre-coronavirus pandemic levels after rising 6.5% in the month before, although it was stronger than economists forecast in a Reuters poll of 2.5%.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry (METI) expected production to grow by 3.4% in August and 1.0% in September.

Overall output was expected to be boosted by a sharp jump in production machinery manufacturing next month, even as transport equipment, including car production, was seen shrinking more than 7% from the previous month.

But the forecast for the decline in transport equipment was probably not entirely affected by the disruption in parts supply in Southeast Asia, a government official said.

Toyota Motor Corp (7203.T), the world’s largest automaker by sales volume, said this month it would cut September production by 40% from its previous plan due to chip shortages. read more

Minami said manufacturers’ finicky supply chains mean that carmakers often optimize the supply of car parts, increasing the risk of production delays.

Separate data on Tuesday showed the jobless rate eased for a second straight month, falling to 2.8% from 2.9% in June, with the real number of unemployed falling year-on-year in 18 months.

Data from the labor ministry showed that the job availability index rose slightly to 1.15 from 1.13 in June.

A separate government survey showed consumer confidence fell to a three-month low in August, as widespread restrictions in response to a rising number of COVID-19 cases weighed on people’s willingness to spend.

Japan’s economy expanded 1.3% annually in the second quarter, driven by solid consumption and exports.

But growth in the current quarter is expected to be modest, with some analysts predicting a possible contraction, as the country grapples with a COVID-19 resurgence that has burdened medical facilities and shows no signs of slowing down.

Reporting by Daniel Lusink; Additional reporting by Kentaro Sugiyama and Kantaro Komiya; Editing by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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