Japan: industrial production declines while consumption gains

Production activity has been hit hard by ongoing global supply chain disruptions. April industrial production declined by -1.3% month-on-month, seasonally-adjusted (vs 0.3% in March) which is more than the market consensus of -0.2%. Among the largest declines, semiconductors (-7.1%), machineries (-2.7%), and automobiles (-3.0%) were down most notably. Meanwhile, shipments were unchanged compared to the previous month, with declines mostly concentrated in automobiles, semiconductors, and petrochemicals, mainly due to China's recent lockdowns.

Retail sales grew 0.8%MoM sa in April while March data was revised down to 1.7% (vs 2.0% previously). The reopening effect has supported consumption activity as apparel jumped 12.8% after declining in the previous three months, and general merchandise sales gained three months in a row. However, higher commodity prices appeared to partially suppress consumption. Fuel sales contracted -1.6% in April (vs -0.5% in March) while supermarket sales fell -1.2% in April (vs -0.6% in March).

Labour conditions in Japan improved in April. The jobless rate dropped to 2.5% (vs 2.6% which was the market consensus and the rate in March) while the labour participation rate continued to advance to 62.6% (vs 62.1% in March). In addition, the job-to-application ratio ticked up to 1.23 (vs 1.22 in March).

Meanwhile, consumer sentiment appeared to make gradual progress thanks to an improved Covid-19 situation. The consumer confidence index rose to 34.1 (vs 33.8 market consensus) with all sub-indices improved. The overall livelihood index rebounded firmly – for the first time in five months – while income growth also increased.

We ought to be on the lookout for tighter labour market conditions leading to wage growth, which is what the Bank of Japan has been looking at to gauge a sustainable inflation trend. Today’s improved consumer sentiment on income and employment gives a positive signal for now.