Japan factory output slumps in June as trade war bites

[TOKYO] Japan's factory output fell more than expected in June after two straight months of gains, adding to a slew of data suggesting that slowing global growth and the protracted US-China trade war were taking a toll on the export-reliant economy.

The data comes ahead of the Bank of Japan's two-day policy meeting that ends later on Tuesday, where the board is expected to scrutinise the impact overseas risks could have on its view the economy will sustain a moderate recovery.

Industrial output fell 3.6 per cent in June, government data showed on Tuesday, more than a median market forecast for a 2.0 per cent drop. It followed a 2.0 per cent rise in the previous month.

Manufacturers surveyed by the government expect output to rise 2.7 per cent in July and 0.6 per cent in August, offering some hope that solid domestic demand will make up for some of the weakness in overseas shipments.

"Industrial output growth has been moving sideways," the government said, keeping its assessment on factory output unchanged.

On a quarter-to-quarter basis, output rose 0.5 per cent in the April-June period after dropping 2.5 per cent in the first three months of this year.

Manufacturing activity has weakened across the globe as simmering international trade tensions hurt business sentiment, forcing the International Monetary Fund to cut its global growth forecast and prodding some central banks to expand stimulus.

Japan has seen a similar pattern with manufacturers' sentiment having worsened, though service-sector activity remains firm as they are less vulnerable to the impact from slowing global trade.

Japan's economy expanded an annualised 2.1 per cent in the first quarter but many analysts expect growth to have slowed as the US-China trade row hurts exports. October's scheduled sales tax hike may also curb consumption, they warn.

REUTERS