Japan’s output falls for second month as US tariffs drag on

Japan’s factory output fell for a second month in August as businesses remained cautious amid a murky global outlook as a result of US President Donald Trump’s ongoing tariff campaign.

Industrial production dropped 1.2% from the previous month, following the same pace of decline from July, the Economy Ministry reported on Tuesday. The fall was led by metal products and electronic machinery, and was deeper than the median forecast of a 0.9% decline. Compared to a year earlier, output fell 1.3%, versus expectations for a 0.9% drop.

The data reflect ongoing caution among manufacturers, as the US continues to threaten additional tariffs to narrow its trade deficit. Trump recently announced a fresh round of industry-specific levies targeting heavy trucks, patented drugs, kitchen cabinets and upholstered furniture.

The latest US move signals that the trade war is far from over and could further strain the global economy, casting a cloud over Japan after it managed to secure further implementation of a bilateral deal with Washington earlier this month. The agreement fixes US tariffs on Japan’s exports including cars at 15%.

The outlook for the next few months is relatively optimistic, with manufacturers anticipating production to rise 4.1% in September and gain 1.2% in October. Further insight into business sentiment will come from the Bank of Japan’s Tankan survey due Wednesday. Economists expect confidence among large manufacturers to improve slightly, despite an increasingly uncertain global backdrop.

Adding to concerns is weak consumer spending. Separate data from the ministry showed that retail sales declined 1.1% in August from the previous month, compared to expectations for a 1.2% gain. While inflation is moderating, it still outpaces wage growth, limiting consumers’ purchasing power and dampening household spending.

To cushion households from persistent inflation, the government is expected to announce additional relief measures this fall. The timing and contents will likely depend on the new prime minister, after the ruling Liberal Democratic Party chooses its new leader on Oct. 4. Leading candidate Shinjiro Koizumi has pledged to roll out economic support measures if elected, aiming to boost wages and ease the inflation burden on households.

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