JAPAN’S factory output shrank at the fastest pace in eight months in January as declining overseas demand took a heavy toll on key industries such as automakers and the semiconductor equipment sector.

Factory output fell 4.6 per cent in January from a month earlier on a seasonally adjusted basis, government data showed on Tuesday.

The contraction was much larger than economists’ median forecast of a 2.6 per cent decline and followed an upwardly-revised 0.3 per cent increase in December.

It marked the fastest decrease since May 2022’s 7.5 per cent fall, when China’s Covid-19 lockdown disrupted Japanese manufacturers’ supply chains.

Output of auto products slumped 10.1 per cent, dragging the overall index lower while manufacturing of items such as production machinery and electronic parts dropped 13.5 per cent and 4.2 per cent, respectively.

Semiconductor-making equipment was down 26.8 per cent as chip firms slowed their capital expenditure, while passenger cars fell 7.4 per cent due in part to component supply bottleneck caused by heavy snow across Japan, a Ministry of Economy, Trade and Industry (METI) official told reporters.

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The United States-led export control of chip equipment against China “has not had an immediate effect” on Japanese industrial production in January, the official added.

Manufacturers surveyed by METI expect output to rise 8.0 per cent in February and gain 0.7 per cent in March, the data also showed, although the official poll tends to report an optimistic outlook.

Separate data showed Japanese retail sales rose 6.3 per cent in January from a year earlier, beating a median market forecast for a 4.0 per cent gain and posting an eleventh consecutive month of expansion. It also logged the fastest growth since May 2021.

Compared with the previous month, retail sales expanded 1.9 per cent in January, following a 1.1 per cent rise in December, the data showed.

Japan’s economy, the world’s third-largest, is expected to post an annualised 1.4 per cent expansion in January-March according to a Reuters poll, after weaker-than-expected 0.6 per cent growth in the final quarter of 2022. REUTERS