By Daniel Leussink

TOKYO (Reuters). Japan’s manufacturing output rose for the second month straight in March thanks to strong demand from the world for high-tech chip technology. This helped alleviate some concerns that have been weighing down the country’s economy.

After struggling to make a strong recovery after the coronavirus outbreak, the third-largest economy in the world is under increasing pressure due to Russia’s aggression in Ukraine and high commodity and energy prices.

Official data on Thursday showed that March’s factory output rose 0.3% from February. This was due to an increase in production of products such as semiconductors, which offset the decrease in vehicle output.

The result was a slowdown in output growth from February’s sharp increase of 2.0%. In a Reuters poll, economists predicted a decrease of 0.5%.

Data from separate sources showed that retail sales rose 0.9% in March, more than was expected, after pandemic curbs were lifted. This is higher than what the median market predicted for 0.4%.

Takumi Takumi Tsunoda (senior economist at Shinkin Central Bank Research Institute) stated, “Personal Consumption will likely pick-up ahead, but supply constraints will affect output.”

The prolonged effects of the shortage of semiconductors and the Shanghai lockdown will have a significant impact on output, especially motor vehicle production.

Japan’s fragile recovery has led the central bank of the country to maintain its extremely easy stance against tighter policies by major economies.

A two-day policy meeting concluded later in the day on Thursday. The Bank of Japan is generally expected to keep extremely low interest rates. They also warn of increasing economic risks from rising raw materials costs.

According to the Ministry of Economy, Trade and Industry, (METI), manufacturers surveyed expected their output to rise by 5.8% in April, and fall by 0.8% by May.

In the face of the uncertainty created by Ukraine’s situation, Japan’s manufacturing sector has remained strong despite the rise in commodity prices. Exporters have also been hit with increased input costs due to the rapid weakness of the Japanese yen.

Private consumption which makes up more than half the gross domestic product has not recovered fully from the effects of the pandemic. This is because a record Omicron surge delayed the recovery.