Inventory Adjustments Lead to Cuts in Factory Output Assessment in Japan

Published Date : Jul 21, 2015

As Japan’s auto makers and electronic parts manufacturers restrain the output in order to bring down the inventories of their finished goods, Japan’s government took down its assessment of the overall industrial output in July. 

The industrial output in Japan is flat, added Cabinet Office in its official economic report. The report was a total downgrade from last month’s assessment which stated that the factory is recovering, despite the weak trends.  

The government left the overall assessment untouched and unchanged. It did not react since the economy is in the gradual recovery phase owing to the capital expenditure plans and consumer spending. The government also highlighted China’s slow economy might be a potential risk as a matter of fact. 

The economic growth in Japan is already predicted to slow down in the second quarter, partly, because of the inventory adjustments. The slowdown by the industry also exhibits that the transport equipment makers are weak and broken down, said Cabinet Office in the report.

Most economists on this study anticipate growth to speed up again in the present quarter. However, the lackluster factory output is likely to cast doubt on the overall pace of the market growth. 

The electronics parts makers are weakening, while the industrial machinery is recovering. The output should recover after the inventory adjustments are over. 

The industrial output in May declined unexpectedly at the fastest pace in three months. This was due to the sloping output of cars, chemicals, trucks, and flat-panel displays. 

Manufacturers forecast that the output will increase in the months of June and July. However, some economists presage that these forecasts are overly optimistic.  
Due to stringent restrictions on margin trading, high concerns with China’s shaky economy is also on the rise. This is further stimulated by panicked sell-off in Chinese shares. 

Consumer spending and housing market are certainly showing positive signs of recovery, said Cabinet Office.  

The exports are flat, but the labor market is progressing and improving, said the government. Both remain unchanged from the previous month. The Bank of Japan and the government have emphasized on consumer spending and stated it as the key to self-sustained economic growth.