April 27, 2018 / 1:17 AM / a year ago

Japan's March factory output beats expectations, inventories build up

TOKYO (Reuters) - Japan’s industrial output rose more than expected in March, government data showed on Friday, but a large increase in inventories of electronic parts suggests manufacturers may have to cut production, hurting economic growth.

Separate data showed retail sales rose less than expected in a blow to hopes for higher consumer spending. Demand for labor, however, increased in March as companies continue to struggle to find workers.

Japan’s industrial output rose 1.2 percent in March from February, the data showed, beating the median forecast for a 0.5 percent increase and followed a 2.0 percent rise in February.

“The headline figure is better than expected, but I am not confident about the outlook,” said Hiroaki Muto, economist at Tokai Tokyo Research Center.

“High levels of inventories are flashing signs that we have entered a correction phase. Manufacturing in other economies is starting to weaken. We shouldn’t take this lightly.”

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expected output to rise 3.1 percent in April but fall 1.6 percent in May.

Inventories of electronic parts, such as semiconductors and flat panel displays, surged 12.8 percent in March, versus a 1.7 percent increase in the previous month.

Retail sales rose 1.0 percent in March from a year earlier, less than a median market forecast for a 1.7 percent annual increase.

The jobs-to-applicants ratio, a measure of labor demand, rose to 1.59 in March from 1.58 to match the highest level seen in four decades. Japan’s low birth rate and rapidly ageing population has led to a shortage of workers.

The jobless rate held steady at 2.5 percent in March, near the lowest in 24 years.

The output, jobs and retail sales data comes before the Bank of Japan’s monetary policy meeting ends later on Friday. It is expected to keep policy on hold but could soon split over how to deal with sluggish inflation.

A Reuters poll found that Japan’s longest run of economic growth since the 1980s asset bubble is expected to have slowed to an annualized rate of 0.5 percent in January-March, down from 1.6 percent annualized growth in the fourth quarter.

Reporting by Stanley White; Editing by Eric Meijer

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