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Japan's Industrial Output Contracts For First Time in Six Months in May

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Japan's Industrial Output Contracts For First Time in Six Months in May

Japan's industrial production unexpectedly fell 1.7% year over year in May, according to preliminary data released by the Ministry of Economy, Trade and Industry on Tuesday.

The reading missed economists' expectations for a 2.2% increase, according to Trading Economics, and followed a 2.0% rise in April.

The annual decline was driven mainly by lower output of general-purpose and business-oriented machinery, electrical machinery, and information and communication electronics equipment.

On a month-over-month basis, industrial production rose 0.5% in May, matching April's pace but falling short of the 0.6% increase expected by economists, according to Investing.com.

The data will be among the indicators the Bank of Japan will monitor as it considers the timing of future interest-rate hikes.

The BOJ raised its policy rate by 25 basis points to 1.0% earlier this month, the highest level since 1995, citing growing inflation risks from higher energy costs and signaling that further policy tightening remains under consideration.

Separately, Prime Minister Sanae Takaichi said earlier this month that Japan has secured stable oil supplies through the end of March 2028 despite the conflict with Iran.

The plan relies on a combination of alternative crude imports and stockpile releases, extending the country's previous supply outlook by about one year.

"In July, we are expecting to secure from alternate sources about 100% of the average monthly amount," Takaichi said at a cabinet meeting.

"Thanks to the efforts of all of those involved, it looks like we'll be able to fully source all of our crude oil from areas outside of the Strait of Hormuz, despite having relied on the strait for over 90% of our oil previously," she added.

The industrial output data also comes as the yen weakened to 162.41 per U.S. dollar on Tuesday, its lowest level since 1986, fueling speculation that Japanese authorities could intervene in the currency market.

Finance Minister Satsuki Katayama reiterated that officials stood ready to respond appropriately at any time, while stopping short of issuing stronger warnings about intervention.

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