Japan factory output seen down again, retail sales up amid fragile recovery

TOKYO (Reuters) – Japan’s factory output likely fell for a second straight month in March, but retail sales were set for a solid rebound from the prior month’s decline, a Reuters poll showed on Friday, underscoring a fragile recovery from the coronavirus crisis.

FILE PHOTO: Smoke rises from a factory during the sunset at Keihin industrial zone in Kawasaki, Japan, January 16, 2017. REUTERS/Toru Hanai

The mixed batch of indicators will follow a government move to issue a third state of emergency in Tokyo and other major regions for April 25 to May 11 in a blow to service-sector activity, stoking fears of a double-dip recession.

Under a new state of emergency, the government is expected to require restaurants, bars, and karaoke parlours serving alcohol, department stores and other large retailers to close.

Industry ministry data out at 8:50 a.m. April 30 (2350 GMT April 29) is expected to show factory output fell 2.0% month-on-month in March, following a 1.3% drop in the previous month, according to a Reuters poll of 18 economists.

That would raise concerns about factory activity, which is seen as a key driver of economic recovery led by global demand for cars and electronics. The outlook is clouded by a global shortage of chips.

“While appetite for capital spending is picking up, led by information-related and capital goods, car makers are being forced to curb output due to chip shortages,” Takeshi Minami, chief economist at Norinchukin Research Institute, said.

“Factory output is expected to be seesawing ahead.”

Separate data by the ministry out 8:50 a.m. April 28 (2350 GMT April 27) is expected to show retail sales jumped 4.7% in March, reversing from a 1.5% decline in February, likely driven by pent up demand from COVID curbs put in place earlier this year, a Reuters poll showed.

However, a new state of emergency could deal a heavy blow to the service sector, which may push Japan back into recession if retailers are asked to close during the Golden Week holidays from next week and through early May, analysts say.

Highlighting the risk of a return to deflation, core consumer prices in the Tokyo area are expected to turn flat year-on-year in April, versus a 0.1% fall in the prior month, despite downward pressure from lower cellphone charge fees.

While the job availability and jobless rate likely held steady at 1.09 and 2.9% respectively in March, housing starts are expected to have tumbled 7.4% in the year to March, in a sign of a COVID blow to housing demand.

Tokyo CPI and job data will be published at 8:30 a.m. April 30 (2330 GMT April 29) and housing starts data will be issued at 2 p.m. (0500 GMT April 30).

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