Japan's Industrial Output Rises for Fourth Straight Quarter on Chip Demand

Japan's industrial production extended its winning streak to a fourth consecutive quarter in July, with output rising 0.1% month-on-month and 4.1% year-on-year, according to preliminary data from the Ministry of Economy, Trade and Industry (METI). The figures surpassed market expectations, supported by robust demand for semiconductor-related equipment.

The seasonally adjusted index of production at factories and mines stood at 104.7 against a 2020 base of 100. Ten of the tracked sectors recorded gains, with production machinery leading the charge—up 5.1% on stronger exports of equipment used in chip and flat-panel display manufacturing. Inorganic and organic chemicals followed, rising 6.0% as maintenance work at major naphtha facilities concluded, boosting output of synthetic rubber, polypropylene, and ethylene.

However, transport equipment excluding motor vehicles fell 4.7%, largely due to a drop in aircraft component orders. The electric machinery and information and communication electronics equipment sector remained flat.

The ministry also reported that the index of industrial shipments rose 2.2% to 103.5, while inventories edged up 0.5% to 98.1. The inventory ratio declined 2.0% year-on-year, driven by reductions in electronic parts, steel, and non-ferrous metals.

In a separate release, retail sales climbed 2.4% month-on-month and 4.0% year-on-year in July, beating estimates. This comes despite household spending having declined for seven straight months through June, as consumers trimmed discretionary purchases amid rising prices for essentials.

Looking ahead, METI's survey of manufacturers projects output to climb 6.4% in August before contracting 4.2% in September, with the pullback expected in production machinery, transport equipment, and electronic parts.