Japan industrial output falls sharply as exports remain low

Industrial production witnessed a sharp fall in Japan during the month of May as weak exports continued to weigh on the country’s manufacturing demand and hence, output. This called for new economic stimulus measures from the central bank at the earliest.

Industrial output declined 2.6 percent in May following strong gains in the previous two months, data released by the Ministry of Economy, Trade and Industry showed Wednesday. The decline was worse than the median estimate of economists, which projected a 2.2 percent drop. In annualized terms, industrial production fell 0.4 percent, official data showed.

In addition to weak retail sales and trade data, softness in industrial output suggests the Japanese economy weakened in the second quarter. Output fell in the majority of Japan’s 15 industrial sectors, a sign that factories across the country were struggling with weak demand.

Higher demand for riskier assets has resulted in sharp declines for the Japanese yen, which reached nearly three-year highs against the dollar following the United Kingdom’s vote to leave the European Union on June 23.

Moreover, Japan’s tertiary activity index, which measures output in the services sector released Tuesday, showed a sharp decline, as well. The activity index declined 0.7 percent in May, official data showed.

Still worse, the consumer price index has declined in each of the past three months, a sign that Japan is losing the fight against deflation, despite a move by Prime Minister Shinzo Abe to add economic stimulus into the country by introducing negative interest rates.

Prime Minister Shinzo Abe announced last month that his government would unleash new economic stimulus measures bu the fall to promote growth and re-inflate the economy.  Abe’s government enjoyed a convincing election victory on Sunday, a sign that voters were still buying into Abenomics despite lackluster results in the first three years.