TOKYO: Japan’s factory output shrank at the fastest pace in eight months in January as declining overseas demand took a heavy toll on key industries such as auto and semiconductor equipment.

In contrast, retail sales posted their fastest growth in nearly two years, separate data showed, highlighting the divergent paths between soft manufacturing and robust service-sector activity.

“Weak export-bound production and a recovery in consumption continue to be the two main focuses of Japan’s economy,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. He expects the new Bank of Japan leadership will be slow to tweak monetary policy amid the uncertainty.

Factory output fell 4.6% in January from a month earlier on a seasonally adjusted basis, government data showed on Tuesday. The contraction was much larger than economists’ median forecast of a 2.6% decline and followed an upwardly revised 0.3% increase in December.

It marked the fastest decrease since May 2022’s 7.5% fall, when China’s COVID-19 lockdown disrupted Japanese manufacturers’ supply chains.

Output of auto products slumped 10.1%, dragging the overall index lower while manufacturing of items such as production machinery and electronic parts dropped 13.5% and 4.2%, respectively.

Semiconductor-making equipment was down 26.8% as chip firms slowed their capital expenditure, while passenger cars fell 7.4% due in part to component supply bottleneck caused by heavy snow across Japan, a Ministry of Economy, Trade and Industry (METI) official told reporters.