Japan manufacturing falls

Japan manufacturing falls
Japanese manufacturing outputs saw a sharp drop of 6.6% in the month of January. This was higher than the industry forecast of 4%, and is also the biggest fall..

Japanese manufacturing outputs saw a sharp drop of 6.6% in the month of January. This was higher than the industry forecast of 4%, and is also the biggest fall since the 2011 earthquakes. Japan’s manufacturing sector has seen a number of scandals in recent years. The economy, while slow, has also seen growth for eight consecutive quarters.


Japan is the third largest economy in the world by nominal GDP after America and China. It has the fourth largest purchasing power parity. After the devastation of the World War II, Japan achieved a steady and significant growth in the second half of 20th century. Much of its expansion was due to its highly successful automotive and consumer electronic industries. Japan has prided itself on its reputation for quality manufacturing. It has used this as a selling point over China and other countries that offer cheaper alternatives to goods.

However, in recent years, Japan’s manufacturing sector has taken significant hits due to a series of scandals. One of the largest scandals was the Takata Corporation admitting to having covered up facts. The company’s airbags were directly linked to a number of deaths and injuries across the world. Takata is facing billions of dollars in liabilities. The company filed for bankruptcy protection in 2017. Some months ago, Japan’s number three steelmaker, Kobe Steel, admitted that executives were aware of falsification of information on inspection certificates. Allegations have also been filed against automobile manufacturer Subaru for tampering with fuel economy data for its vehicles.

In the first half of 2017, Japan blew past industry and market expectations with its growth. However, between October and December, Japan’s economy expanded at an annualized rate of 0.5%, less than the estimate for annualized growth of 0.9%. Domestic demand grew 0.1%, less than the 0.5% rise that the region experienced in the previous quarter.

The Japanese economy has thus recorded growth for an eighth consecutive quarter. The yen has risen approximately 5% against the dollar in 2018.

Recently, Prime Minister Abe re-shuffled his cabinet and noted that economy would be his primary focus. His re-nomination of Haruhiko Kuroda to lead the Bank of Japan this February indicated his intention to continue the current policy of stimulus to encourage growth.


Recent reports have shown that that Japanese factory output has seen its biggest fall in almost seven years, since the March 2011 earthquakes. Industrial output fell by 6.6% in January this year. Markets had predicted a drop of only 4%. This fall is largely due to the decreased production of electronics and automobiles. The output of the former fell by 6.3%, and the latter by 14.1%. Construction equipment output dropped by 7.8%. There has been a corresponding build-up of inventory. 

The industry had seen an output growth of 2.9% in December.

Officials from the ministry of trade have attributed the large drop of automobile production to decreased exports to the United States, as well as damaging weather conditions. Additionally, data showed a decrease in domestic demand for consumer goods including cars, electronic appliances, and clothes. Retail sales for the month of January grew only 1.7% compared to the predicted 2.1%.

Some analysts have predicted a continued, albeit slowed growth. The ministry stated that the January result “suggests that the upward momentum that we saw in the final quarter of last year is gone”. It predicted a rise of 9.0% in February and consequent fall of 2.7% in March. Hiroaki Muto, from the Tokai Tokyo Research Centre, said, “Japan’s economy will grow this year, but not nearly as fast as it did last year. Japan’s government will try to stop the yen from rising, but they also have to worry about trade friction.”

However, others, such as Capital Economics’ Japan economist Marcel Thielant, have taken a more pessimistic outlook. “Our best guess is that industrial output will fall by around 2% q/q this quarter, which would mark the sharpest drop since 2014’s sales tax hike. While industrial output hasn’t been the best guide to GDP growth in recent years, this suggests that the longest stretch of uninterrupted expansion since the late 1980s will come to an end this quarter,” Thielant said.

China’s manufacturing industry also saw a huge drop in growth in January, which officials attributed to the Lunar New Year.


Our assessment is that Japan will be hard pressed to get inflation rates to reach their 2% target. The government will most likely continue attempts to stimulate growth. We believe that the scandals surrounding a number of Japan’s largest industrialists have had a negative impact on their global image. A number of companies are having trouble maintaining the high standards of manufacturing set by earlier generations. Has Japan overstretched itself?