A worker at a weaving machine in a Kojima district factory Chris McGrath, Getty Images

Japanese Factory Output Turns Down for July

Demand drops at home and abroad, with shipments to China down 1.3% year over year, boosting speculation that banks will be forced to unleash more stimulus.

TOKYO — Japan’s factory output contracted a worse-than-expected 0.6% on-month in July, official data showed on Monday, because of slumping demand from China as well as lackluster demand at home.

The reading published by the industry ministry was weaker than the median forecast for a modest 0.1% rise in a survey of economists by Bloomberg News. Industrial production rose 1.1% in June from May.

Production cutbacks in the electrical components and transport equipment industries led the decline in manufacturing, according to the government, as firms tried to cut down on an inventory buildup.

“Production is sluggish because private consumption and exports remain weak,” Toru Suehiro, an economist at Mizuho Securities, told Bloomberg News. “Concern about China and emerging economies is posing a risk to output.”

Japan’s overseas shipments have slowed, raising concerns about the fragile recovery in the world’s No. 3 economy as demand falls in neighboring giant China. China-bound shipments were off 1.3% in July from 12 months earlier in volume terms, outstripping a 0.4% fall to the rest of Asia.

Despite a recovery in the U.S. economy, the slowdown in China — Asia’s top economy and a major market for Japanese exporters — has raised a red flag.

Japan’s economy contracted in the three months to June, boosting speculation that the central bank will be forced to unleash more stimulus as Tokyo’s “Abenomics” growth blitz stumbles.

Bank of Japan governor Haruhiko Kuroda was in New York last week and said that weakness in production and exports would pass, and that leading indicators point to a pickup in business investment.

But “the drop in industrial production in July suggests that economic activity will recover only slowly this quarter,” Marcel Thieliant of Capital Economics said in a commentary.

Also Monday, a survey released with the production data showed that manufacturers expected output in September would fall 1.7% after growth of 2.8% in August. However, Thieliant noted that firms tend to be “too optimistic” about future production.

The factory output data came after separate figures on Friday showed core inflation, excluding volatile fresh food prices, was flat year-on-year, as lower fuel and other energy costs weighed on Tokyo’s battle to push up prices.

Household spending also fell 0.2% in July after declining 2.0% in the previous month, the ministry said.

The two monthly drops followed a strong rise of 4.8% in May that offered some hope for spending after consumers snapped their wallets shut in the wake of a sales tax hike last year.

The consumption levy rise — Japan’s first in 17 years — was aimed at taming a huge national debt, but it slammed the brakes on consumer spending and pushed the economy into a brief recession.

Copyright Agence France-Presse, 2015

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