By Daniel Leussink and Kaori Kaneko

TOKYO (Reuters) – Japan’s factories ramped up output for a third straight month in August, as the manufacturing sector showed resilience in the face of high energy and material costs and worries about a global economic slowdown.

Prime Minister Fumio Kishida on Friday ordered his cabinet ministers to compile an economic stimulus package that will include measures to alleviate the burden faced by businesses and households from rising prices.

Policymakers in the world’s third-largest economy are concerned about recession risks in the United States and other major trading partners, which would make Japan increasingly reliant on domestic consumption for growth.

Factory output gained a seasonally adjusted 2.7% in August from a month earlier, official data showed earlier in the day, extending rises from the prior two months.

Separate figures showed retail sales rose sharply to expand for a sixth straight month in August, while the latest jobs data pointed to tightening labour market conditions.

“Manufacturers’ production activity was firm and production was on an upward trend, as far as for the August data,” said Koya Miyamae, senior economist at SMBC Nikko Securities.

“But there is a possibility that production may stagnate in October-December due to the global economy slowing down.”

The increase, which was much stronger than a median market forecast for a 0.2% gain expected by economists in a Reuters poll, got a lift from firmer output in machinery and iron, steel and non-ferrous metals.

That helped offset a 6.3% slump in electronics parts and devices output and a decline in motor vehicle production, which swung into contraction after posting double-digit gains in June and July.

Toyota Motor Corp, the world’s top automaker by sales, reported a month-on-month decline in Japanese output in August, although its global production rose.

The drop in electronic parts and devices production was largely due to falling output of memory chips on weaker smartphone and personal computer demand, a government official said, adding this presented downside risks to the outlook.

PRICE PRESSURES

The government’s stimulus package will also include steps to promote wage hikes and regional revitalisation, Chief Cabinet Secretary Hirokazu Matsuno told a news conference following prime minister Kishida’s announcement.

Tokyo is expected to fund the steps by a new supplementary budget, a move that would mark the latest episode in ramping up fiscal spending.

“We want to compile an extra budget swiftly after drawing up the economic package at the end of October,” Matsuno said.

Despite worries about the negative impact of surging prices, Japan’s economy was still expected to continue growing throughout 2022, as consumers were likely to keep going out, Miyamae added.

Separate data showed retail sales grew more than expected, rising 4.1% in August from a year earlier, compared with a median forecast for a 2.8% gain in a Reuters poll.

Retail revenues were helped by stronger sales at medicine and toiletry stores as well as of fuel, general merchandise, and fabrics apparel and accessories.

The seasonally adjusted jobless rate was 2.5% in August, compared with the previous month’s 2.6%, while the availability of jobs stood at 1.32, marking its highest since March 2020.

(Reporting by Daniel Leussink and Kaori Kaneko; Additional reporting by Yoshifumi Takemoto; Editing by Sam Holmes & Shri Navaratnam)

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