Japan’s factory output gain shows firms’ resilience amid tariffs
Industrial production gained 1.7% from the previous month, the Industry Ministry reported Thursday. Output of transport equipment excluding cars, up 14.8%, and electronic parts and devices drove the gains. Economists had expected a 0.8% loss. Output increased 4% from a year earlier, topping expectations of a 1.3% gain.
Output of autos, which faced tariffs totaling 27.5% on shipments to the US during the period, nudged 0.1% higher from the prior month. Output for steel and non-ferrous metals declined by 0.5% after US President Donald Trump doubled the duty on US imports of steel and aluminum to 50% in early June.
“I think production increased in some areas to respond to rush demand in anticipation of the tariff hike,” said Yuichi Kodama, economist at Meiji Yasuda Research Institute. “The trend is difficult to grasp due to such demand, but I think production largely remained flat on a quarterly basis.”
Seasonally-adjusted production advanced by 0.3% in the quarter through June from the previous period, reducing the risk that the economy may have fallen into a technical recession in the period.
The gains are forecast to continue after the US and Japan reached a trade agreement with terms considered more favorable to Japan than had been feared. Last week’s surprise deal will cut tariffs on US imports of Japanese cars to 15% and apply the same rate on other products.
Inventories fell 0.4% in June, the third straight month of month-on-month declines, bringing the index down to 99.1, the lowest in just over three years. That indicates that manufacturers have room to add product in months ahead. Manufacturers estimated monthly production will rise 1.8% in July and gain 0.8% in August, according to Thursday’s release.
Separately, retail sales exceeded estimates, rising 1% in June from May and increasing 2% from a year ago. Persistent inflation has kept consumer spending from posting sustained gains as households contending with higher costs for essential goods trimmed discretionary outlays.
Prime Minister Shigeru Ishiba, under pressure to do more to help households cope with inflation, has pledged cash handouts to spur consumption and undertaken steps to reduce utility costs. Ishiba’s position was weakened substantially by his party’s historic upper house election defeat earlier this month. He’s said he’d like to remain in office to ensure the implementation of the trade deal.
The production data come hours before the Bank of Japan’s board concludes its latest policy meeting, where authorities are widely expected to keep the benchmark interest rate unchanged. A focus will be Governor Kazuo Ueda’s assessment of the recent trade deal with the US. Officials see the possibility of mulling another interest rate hike this year after that agreement, people familiar with the matter said last week.
“It will take more time for the impact of tariffs to be confirmed in hard data, so the BOJ is unlikely to raise interest rates today,” Kodama said.
