Japan Factory Output Rises 0.5% as Iran Risk Stays Manageable

Japan's industrial production rose for a second straight month in May. Output climbed 0.5% from April, the Industry Ministry reported Tuesday. The median forecast in a Bloomberg survey was 0.6%.

"Demand on the production side remains relatively robust," said Takeshi Minami, chief economist at the Norinchukin Research Institute. "For the April-June quarter, the impact of the situation in Iran has been limited. I believe the economy remains on a recovery path."

The back-to-back gain aligns with Minami's assessment.

The Japanese government said it can secure enough crude oil through March 2028 by finding alternative routes that avoid the Strait of Hormuz. Prime Minister Sanae Takaichi last week directed the Industry Ministry to draft a comprehensive energy security plan by the end of August.

The May production increase was led by transportation equipment excluding cars, where aircraft engine parts boosted output. Chemicals and petroleum rose, as did coal. Standard passenger vehicles and related parts also contributed. Year-over-year, production fell 1.7%. Chemicals and metal products led the declines with drops of 11.5% and 3.1% respectively.

Manufacturers surveyed by the ministry expect output to rise 3.7% in June and hold flat in July.

Separately, the jobless rate held at 2.5% in May, the Ministry of Internal Affairs reported. The job-to-applicant ratio slipped to 1.17 from 1.18, meaning 117 jobs for every 100 applicants.

The factory data lowers a risk for the Bank of Japan. If output stays on the expected path, the BoJ can focus on whether domestic demand is strong enough to sustain its rate normalisation. The services-sector reading due later this month will provide the next check. The energy plan deadline in late August is the next hard date on the calendar for the Iran supply risk.