Factory output across the world’s third largest economy posted the sharpest decline seen since a year during the month of May, amid a steep reduction in car production. Japan’s industrial output contracted by 5.9% MoM in May on the back of a severe reduction in manufacturing of cars and production machinery.

Car manufacturing across Japan contracted by 19.4% for the month, with the sector hit hard by the global chip shortage. The data is especially disappointing in comparison to April when industrial output had posted a 2.9% increase instead, lending support to hopes for economic recovery in Japan. In addition, May’s reading came in below economists’ expectations, which were for a smaller contraction by 2.4% instead.

On a positive note, however, manufacturers surveyed by the government remain hopeful that their output could bounce back and grow by 9.1% in June. Although, they anticipate another decline by 1.4% during the month of July.

The disappointing industrial output data further reinforces expectations that the Japanese economy could post a very weak performance in the current quarter after contracting during the first three months of the year. However, the nation’s economy minister, Yasutoshi Nishimura, continues to maintain optimism that the economy could bounce back to pre-pandemic levels within the current fiscal year ending in April 2022.