The decline in Japanese factory output was triggered by declining car production and competition from electronics manufacturers for raw materials for semi-conductors.
On Monday (31/January), Japan's Cabinet office released data on factory output which fell from 7 percent to -1 percent (Month-over-Month) in December. This figure is worse than the economist's forecast of -0.8 percent. This decline is also the first decline in the last three months.
The slump in Japanese industrial production this time was triggered by a decline in car production after a spike in November. In addition, the shortage of semi-conductor chips will also put pressure on Japanese automotive production at the end of 2021.
"Factory output fell among capital goods makers, possibly influenced by shortages in the supply of semi-conductors… This indicates that the impact of the shortage of raw materials for chips is persisting and is extending to other industrial sectors outside of autos," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Japanese car manufacturers are forced to increase production amid a rebound in demand from the main Chinese market. However, the shortage of semi-conductor supply has forced automotive manufacturers to compete with electronics companies which are also increasing production due to recovering market demand.
Meanwhile, retail sales data (Retail Sales) which was also released this morning increased 1.4 percent on an annual basis. The figure fell short of economists' expectations for a 2.7 percent increase, and was lower than the 1.9 percent increase in November. Nevertheless, the overall performance of the Japanese retail sector is quite solid as it has consistently increased for three consecutive months. This is supported by strong market demand for general merchandise, food and beverages.
USD/JPY Continues Bullish Trend
At the time this news was written, the USD/JPY pair was moving in the range of 115.41 or up 0.19 percent from the daily open price. Prices continued the upward trend that had formed since last week, when the Fed confirmed it would raise interest rates in March.
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