Japan's March factory output declines, rise in inventories raises concerns

Credit: REUTERS/Toru Hanai

By Stanley White

TOKYO, April 26 (Reuters) - Japan's factory output fell in March for the first time in two months and inventories rose at the fastest pace in a year as the U.S.-Sino trade war dents the country's manufacturing sector.

Separate data showed retail sales picked up in March and labour demand remains the strongest in decades, but these positive figures are unlikely to ease policymakers' concerns about a slowdown in global trade flows.

Factory output fell 0.9 percent in March, data by the Ministry of Economy, Trade and Industry (METI) showed, more than a median estimate for a 0.1 percent decline in a Reuters poll of economists. That followed a 0.7 percent increase in February.

The mounting pressure on Japan's economy from weak external demand has hurt exports and threatens corporate profits, which could weigh on capital expenditure and make it more difficult to keep growth on track, analysts say.

Industrial output fell in March due to a 3.4 percent decline in car output and a 6.7 percent decline in the production of machines used to make semiconductors and flat-panel displays, the data showed.

In another source of concern, inventories rose 1.6 percent in March, the fastest increase in a year, due to higher inventories of metals, plastics, and heavy equipment.

The rise in inventories suggests makers of these goods could curb output in the future.

Manufacturers surveyed by the ministry expect production to rise 2.7 percent in April and 3.6 percent in May, but METI changed its assessment of output to say it is weakening recently.

Retail sales - a key gauge of private consumption that makes up about 60 percent of the economy - rose 1.0 percent in March from a year earlier, more than a 0.8 percent annual gain expected by economists.

Friday's batch of data comes a day after the Bank of Japan said it would keep interest rates low for at least another year, in a move to dispel uncertainty over its commitment to support the economy and drive inflation.

Japan's policymakers are nervously monitoring developments overseas but have few policy options if weakness in the global economy continues to damage the country's outlook, some economists say.

The Sino-U.S. trade war has also had a negative effect on domestic growth, as a slowing Chinese economy curbed demand for mobile phone parts and chip-making equipment from Japan.

Uncertainty over Britain's exit from the European Union and jittery global financial markets have added to a growing list of worries for policymakers.

Additional data released on Friday showed Japan's jobless rate edged up to 2.5 percent in March from 2.3 percent previously, and job availability held steady at 1.63 per applicant, hovering at a 44-year high.

Tokyo's core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose an annual 1.3 percent in April from a year earlier, more than the median estimate for a 1.1 percent annual increase.

(Editing by Jacqueline Wong)

((stanley.white@thomsonreuters.com; +81 3 6441 1984 twitter.com/stanleywhite1; Reuters Messaging: stanley.white.reuters.com@reuters.net))

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