Japan’s Factory Output Beats Forecasts Despite Global Trade Fears

Japan's industrial production rebounded in February, rising 2.5% from the previous month, slightly above the forecasted 2.3%, according to data from the Ministry of Economy, Trade and Industry (METI). This follows a 1.1% decline in January, offering a temporary boost for an economy grappling with mounting global trade risks.

Production machinery, including semiconductor equipment, surged 8.2%, while electronic parts and devices rose 10.1%. However, motor vehicle production inched up just 0.2%. The government noted no direct impact from U.S. tariff threats yet, but emphasized close monitoring of developments, particularly following an early March accident at a Toyota supplier, Chuo Spring.

Despite February’s gains, manufacturers forecast slower growth ahead, expecting output to rise only 0.6% in March and 0.1% in April. Analysts attribute this cautious outlook to weakening global demand, notably from the U.S., China, and Europe. Shungo Akimoto of Mizuho Securities warned of a moderate pace in future industrial output, citing a global slowdown driven by declining U.S. consumer sentiment and sluggish recoveries abroad.

Adding to concerns, Japan’s retail sales grew just 1.4% in February year-over-year, falling short of the expected 2.0% and decelerating sharply from January's 4.4% gain. Subdued domestic consumption, paired with rising external threats, casts doubt on sustained economic momentum.

A major worry for Japan is U.S. President Donald Trump's proposed 25% tariffs on auto imports, set to take effect soon. With automobiles accounting for 28.3% of Japan’s exports to the U.S. in 2024, any disruption could significantly impact Japan’s export-reliant economy.

As Japan faces escalating global trade tensions, policymakers and manufacturers remain cautious, bracing for a challenging road ahead.