Production, in the modern world, is demand led. From an accounting perspective, it is better to ensure that a business does not have large stockpiles of unsold goods on its shelves. Unsold inventories represent an asset which is not generating an income and may involve storage costs (or, possibly depreciation risk); it is better to match demand and output as closely as possible with the aim of ensuring that demand can always be met, but without holding an excessive inventory.
A major market for Japanese exports, particularly its electronic products, is China. However, in its own terms, the Chinese economy has been slowing recently and this has led to a reduction of demand from exporting nations, including Japan. As a consequence of this reduced demand, Japanese factory output figures for April have dipped below analysts expectations.
Japan is still recovering from the earthquake and tsunami that afflicted it in March 2011. Japanese production in the automotive sector was also badly hit by devastating flooding in Southeast Asia where manufacturers have satellite production facilities. It takes time for these factors to feed through the system. Analysts had expected Japanese factory output to increase by 0.5% over the March figure, in April. In the event, the sector did achieve growth, but at just 0.2%, it was well under half the expected level according to data released by the ministry of trade.
The gloom is set to continue as the ministry of trade is anticipating that output will fall again in May before staging a recovery in June – obviously, the knock-on effect of the Greece/Euro crisis is a wild card in this calculation.