Japan Robot Exports Climb, But Rising Inventories Pose Risk

Japan’s manufacturing sector is chugging along, underpinned by strong demand from China for such products as robots and smartphone components.

The seasonally adjusted industrial production index for November crept up 0.6% from the previous month to 103.6, according to preliminary data released Friday by the ministry of economy, trade and industry, Nikkei reported.

The ministry upgraded its overall assessment, describing industrial production as “picking up”, a phrase used for the first time in roughly 22 years.

General-purpose, production and business-oriented machinery—a category that covers excavators and robots—led all other industries in lifting the production index. Output in that category jumped by 3.1% over the month in November. Exports of industrial robots to China swelled as companies there invest in labor-saving solutions to combat rising labor costs.

China’s environmental regulations are also providing a tailwind for Japanese-made factory robots. Annual production of industrial robots by value is set to top 800 billion yen ($7.08 billion) for the first time this year, according to the Japan Robot Association.

The semiconductor sector is also brisk thanks in large part to the Chinese market. November exports to China hit a monthly record, data from the ministry of finance shows, with chip-making equipment providing a major boost.

Although the trade ministry is more upbeat about production, there are still data points that give observers pause. Shipments of durable consumer goods, such as cars and home electronics, have been mostly flat since the consumption tax was raised in 2014. These shipments closely track domestic consumption.

Another concern is rising inventories. Even though the inventory index for November dipped 1.0 point overall to 109.6, inventories in some sectors jumped: transport equipment, which includes automobiles, saw a 4.8% rise on the month and a 26% increase on the year. The rise reflects “worsened domestic sales of passenger vehicles,” according to Takeshi Minami at the Norinchukin Research Institute.

Inventories in the electronic parts sector climbed 3.6% on the month to the highest level since September of last year. Toru Suehiro at Mizuho Securities points to signs of overproduction.

Companies have been actively building up inventories so that they will not miss business opportunities. But in the near future there could be a phase in which inventories start increasing more than expected by businesses, the trade ministry warns. Production then could stop rising.