UPDATE 4-Japan’s production increases for the first time in 4 months as supply for automakers dwindles

* October output gain offers hope for economic recovery

* Auto recovery compensates for stagnation among manufacturers

* Manufacturers see output jump in Nov., Dec.

* Unemployment rate fell to a 7-month low of 2.7% in October

From Kantaro Komiya

TOKYO, Nov 30 (Reuters) – Japan’s industrial production rose for the first time in four months in October as the reopening of Asian factories eased supply bottlenecks for automakers, giving hope to the export-dependent economy as it struggles for a solid recovery.

The increase was less than market expectations, underscoring the ongoing impact of global supply chain disruptions. However, analysts see signs of an improvement in the outlook.

“The poor production of automakers has curbed Japan’s total production in the past three months, but the situation is easing,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

Factory output rose 1.1% month-on-month in October, government data on Wednesday showed, marking the first increase since June. In a Reuters survey of economists, an increase of 1.8% was forecast and a decrease of 5.4% was recorded in the previous month.

Auto production rose 15.4% in October compared to the previous month, the first increase in four months thanks to the easing impact of parts shortages in Asia, an official with the Department of Economy, Trade and Industry (METI) said in a briefing.

Automobile manufacturers are compensating for shrinking production in sectors such as chemicals, steel, and electronic components and devices.

The outlook suggested some stabilization was imminent, with manufacturers polled by the government anticipating a 9.0% increase in production in November, led by a 35.8% increase in automakers, followed by an increase of 2, 1% in December, the data showed.

Automakers, which account for 15% of Japanese industrial output according to METI, including Toyota Motor Corp and Honda Motor Co, announced earlier this month their plans to return to normal production in December.

“While other sectors’ production forecasts appear optimistic, automakers’ production plans are reliably solid,” Minami said, attributing them to automakers’ lean manufacturing processes that affect a large number of parts suppliers.

Still, he believes it will likely take until early 2022 for companies to make up for the months of production downtime.

Manufacturers ‘plans reflect mitigated effects of chip and parts shortages, a government official said, but warned of risks in companies’ supply chains, including any impact related to the Omicron variant of COVID-19.

Separate data on Tuesday showed Japan’s unemployment rate stood at 2.7% in October, down from 2.8% the previous month to its lowest level since March, while an index measuring job availability dropped from 1.16 in September to 1, 15 fell.

After falling in July-September, economists polled by Reuters expect the world’s third largest economy to rebound in the current quarter thanks to an annualized 5.1% increase in consumption as the state of emergency restrictions caused by the pandemic were lifted.

The Bank of Japan’s December 16-17 interest rate review is unlikely to see any change to its ultra-easy policy, but it could decide whether to extend pandemic relief loan programs beyond the current March 2022 deadline.

“In the summer of 2020, a rapid recovery in automakers from a slump contributed to the general growth in industrial production,” said Minami.

“If the scene repeats itself successfully, Japan’s production may return to an upward trend with makeup production plans for the next year.” (Reporting by Kantaro Komiya; Additional reporting by Yoshifumi Takemoto and Kentaro Sugiyama Editing by Shri Navratnam)

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