MNI BRIEF: Japan July Factor Output Posts 1st Drop in 2 Months

Japan’s industrial output fell 1.6% m/m in July, the first drop in two months, after rising 2.1% in June due to weaker auto production, data from the Ministry of Economy, Trade and Industry showed Friday.

Automobile production declined 6.7%, the first fall in three months, reversing a 0.5% rise in June as front-loaded exports ahead of U.S. tariffs weighed. Output of electronic parts and devices rose 2.4%, extending June’s 8.8% gain.

Industrial production is closely watched by the Bank of Japan as a gauge of external and domestic demand.

METI’s survey of manufacturers pointed to a 2.8% rebound in August, revised up from 0.8% forecast a month earlier, before a 0.3% fall in September. Adjusted for over-optimism in company plans, METI estimated August output would decline 1.7%.

On this basis, output is projected to fall 1.5% q/q in July-September, the first drop in two quarters, after a 0.4% gain in Q2.

BOJ officials remain cautious over the impact of U.S. tariffs on exports and production, with a focus on potential spillovers to corporate profits and wage growth.