Japan's May Factory Output Growth Misses Expectations, Adding Uncertainty to BOJ Rate Path

By Satoshi Sugiyama

TOKYO, June 30 (Reuters) – Japan's factory output rose less than expected in May, government data showed on Tuesday, as the country's industrial recovery lost some momentum amid uneven global demand and lingering supply chain pressures.

Output grew 0.5% month-on-month, according to the Ministry of Economy, Trade and Industry (METI), missing the median market forecast of a 1.1% increase. It marked the second consecutive month of expansion, but the modest pace highlights the fragility of Japan's manufacturing sector even as the broader economy shows signs of stabilizing.

Manufacturers surveyed by METI expect seasonally adjusted output to climb 3.7% in June and remain flat in July, suggesting cautious optimism tempered by uncertainty over export orders and input costs. The transport equipment segment — a key driver — rose 4.6% from April, aided by a recovery in automotive production, while output of inorganic and organic chemicals gained 3.7%.

The weak showing in May may influence the Bank of Japan's thinking as policymakers weigh whether to raise interest rates in the months ahead. The central bank has signaled it could tighten policy if inflation and wage growth stay robust, but underwhelming industrial data could give hawks pause. The BOJ is expected to scrutinize the factory output figures alongside other indicators, including services activity and consumer spending, at its next policy meeting in July.

(Reporting by Satoshi Sugiyama; Editing by Chang-Ran Kim and Shri Navaratnam)