Japan factory output slides as retail sales weaken in August

Japan’s recovery hit a soft patch in August as factory output fell and shoppers pulled back.

Industrial production slipped 1.2% from July, while retail sales declined 1.1% from a year earlier, according to preliminary figures from the Ministry of Economy, Trade and Industry.

The production setback was broad, METI highlighted weaker output in electrical machinery, fabricated metals, and chemicals as key drags.

Shipments edged up 0.5% on the month, but inventories fell 1.0% and the inventory ratio climbed 2.5%, a combination that signals manufacturers are still fine-tuning stock levels.

METI summed up the trend as “Industrial Production fluctuates indecisively,” a cautious assessment that tracks with choppy global demand.

There were pockets of resilience on the factory floor. Transport equipment and motor vehicles posted gains, reflecting some easing in parts shortages and steady overseas demand for select models.

Even so, the ministry’s tone suggests producers remain careful about ramping up until orders firm decisively.

Consumer spending painted a similar picture, overall retail sales fell 1.1% year over year and 1.1% from July after seasonal adjustment.

Within the mix, auto dealers saw a 7.9% drop from a year earlier, while fuel retailers and nonstore merchants also declined. Department stores and supermarkets held up better, with combined sales up 3.3% year over year, but that was not enough to offset weakness elsewhere.

Manufacturers expect a rebound over the next two months, with METI’s survey pointing to a 4.1% rise in output in September followed by a 1.2% increase in October.

Those projections offer a near-term cushion, though actual production will depend on export orders, supply chains, and how quickly retailers work through inventory.

Headline consumer inflation ran at 2.7% in August, which keeps purchasing power under pressure even as wage growth improves in some sectors.

If spending stays uneven into the fall, firms may hesitate to pass through costs or expand hiring, complicating the broader handoff from external demand to domestic demand.

The production forecasts hint at stabilization, yet the August data show how easily activity can slip when global electronics cycles cool or when big-ticket items like cars slow.