Japan’s industrial production declined by 3.3% month-over-month in August 2024, a sharp reversal from the 3.1% growth recorded in July. This drop significantly exceeded market expectations of a 0.9% contraction, according to flash data. It marks the fifth time industrial output has decreased in 2024, reflecting ongoing struggles in key sectors of the economy.

Sector-Specific Declines

The steep decline in August was largely driven by reduced output in several major industries:

• Motor vehicles: Production fell by 10.6%, a sharp downturn from the 1.9% growth seen in July. This was a significant factor in the overall contraction.
• Electrical machinery and information/communication electronics: Output in this sector dropped by 6.2%, a notable shift from the 7.5% increase in the previous month.
• Production machinery: The sector experienced a 4.6% decline, following a strong 7.0% growth in July.

Annual Performance and Broader Trends

On a year-over-year basis, industrial production shrank by 4.9%, reversing the 2.9% annual growth seen in July. This marks the sixth annual decline in 2024, underscoring the persistent challenges faced by Japan’s industrial sector. Global supply chain disruptions, weak external demand, and rising costs have contributed to this downward trend.

Outlook

The unexpected contraction in August raises concerns about the resilience of Japan’s industrial sector as it grapples with both domestic and global economic pressures. The sharp declines in key industries like automotive and electronics signal potential further weakening in the coming months, particularly as global demand softens and cost pressures remain elevated.