Japan Factory Output Beats Forecasts as Retail Sales Lose Momentum

Japan’s June data showed a split economy: industrial production surprised to the upside, while retail sales weakened sharply. Factory output rose 1.3% m/m and 4.2% y/y, beating forecasts and marking a third straight monthly increase, with manufacturers expecting further gains in July and August. However, retail sales slowed to 0.5% y/y and fell 4.1% m/m, the weakest reading in over two years, signaling softer household demand. The report supports the view that Japan’s manufacturing recovery remains intact, but domestic consumption is under pressure from higher living costs. For markets, the data are slightly yen-supportive in the sense that resilient industrial activity keeps the BOJ normalization story alive, but the weak consumer side argues for caution and a gradual policy path rather than aggressive tightening.