Japan’s factory output rebounded in December, supporting the view that the sputtering economy returned to growth in the final quarter of last year even as doubts remain over the strength of domestic demand.
Industrial production gained 1.8% from November, after falling the previous month, as output of machinery and chemicals expanded, the industry ministry said Wednesday. That was the biggest gain since June, though smaller than the consensus view for a 2.5% increase.
A separate report gave a gloomier picture of the economy as retail sales fell 2.9% from November, leaving them 2.1% above year-earlier levels.
The return to growth in production will offer support for the economy, pointing to the likelihood that it rebounded in the fourth quarter after a sharp contraction in summer. Still, the weakness in retail trade points to the ongoing fragility in the economy as consumers keep a careful eye on spending amid the strongest inflation cycle in decades.
A return to overall growth in the economy will likely make it easier for the Bank of Japan to end its negative interest rate policy, a move that two-thirds of economists surveyed by Bloomberg expect to see by April.
Output in the quarter through December rose 1.4% from the previous three months, compared with a 1.2% decline over the summer when Japan’s economy shrank.
Among components underpinning the expansion in factory output in the latest month were testing equipment, conveyor belt systems, chemicals and semiconductor-related gear.
Production was supported by stronger-than-expected exports in December, with shipments to the US rising at a double-digit clip and those to China rising for the first time in more than a year. But analysts warn that overseas demand is likely to stall down the road given expected slowdowns in the global economy. Growth in both the US and China is predicted to slow this year.
The report showed that the ministry expects factory production to fall sharply in January, by 6.2%, in another less promising sign for growth in 2024.
Analysts expect Japan’s economy to post an annualized expansion of 1.1% in the last quarter of 2023, avoiding a technical recession. A report on gross domestic product is due Feb. 15.
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