— Japan Industrial Output Posts 4th Drop In Row; Aug -0.5%

TOKYO (MNI) – Japanese industrial production fell 1.6% in September
from August, revised up from a preliminary 1.9% drop but still marking
the fourth straight monthly decline after -0.5% in August, data from the
Ministry of Economy, Trade and Industry Thursday showed.

As the ministry added the food, tobacco and medical sectors that
are not covered in preliminary data, sharp gains in production of food
including alcohol helped trim the drop in the overall output compared
with initially estimated figures.

But as seen in the initial reading, output was dragged down by
lower demand for passenger cars, chassis and auto parts following the
end of the government’s subsidy for buying fuel-efficient vehicles in
early September.

July-September industrial production fell a revised 1.8%
(preliminary 1.9%) from the previous quarter after +1.5% in April-June,
marking the first q/q drop in six quarters since -20.0% in Q1 of 2009.
It was down sharply from +7.0% in January-March 2010 and +5.9% in the
final quarter of 2009.

Last month METI reported its survey of firms’ forecasts, which
showed that production will drop by 3.6% m/m in October — revised down
from the 2.9% decline estimated in the previous month’s survey — before
rebounding by 1.7% in November (first estimate).

With automakers now feeling the pinch from dwindling domestic
demand, METI downgraded last month its assessment for the second
consecutive month, saying: “Industrial production appears to have
weakened.”

Industries that are expected to show a decline in October output
are transport equipment and electronic parts and devices as well as
information and communication electronics equipment. A rebound in output
of general machinery, electronic parts and devices as well as
transportation equipment is forecast to lead the gain in November.

Automakers, which carry a heavy weighting in the index, are scaling
back their production amid concerns that demand will shrink in the
coming months since the government ended its subsidy program in
September.

New vehicle sales in Japan fell 26.7% from a year earlier to
193,258 units in October, the second consecutive y/y fall, which was the
first y/y drop in 14 months, data released by the Japan Automobile
Dealers Association showed this month.

In September, output of transportation equipment fell a revised
3.8% m/m (preliminary -4.2%), posting a fifth-straight monthly decline,
while production of electronic parts and devices declined by a revised
4.9% (initially -5.0%), the fourth consecutive month of drops.

Until June’s decline, output had gained every month since March
2009 except for the 0.6% drop in February this year. The sharp 1.1%
decline in June was seen at the time as a temporary blip, due in part to
distorted seasonal adjustments caused by the Lehman shock of 2008.

Production had generally improved from the sharp plunge seen from
late 2008 through early 2009. It rose a record +4.6% m/m in May 2009.

Compared with the year earlier level, production in September this
year rose a revised 11.5% y/y (preliminary +11.1%), following +15.1% in
August. It has recovered from the record 38.6% drop in February 2009.
The 6.4% rise in December 2009 was the first y/y gain in 15 months.

Other details from the latest data:

Shipments: Sept revised -0.5% m/m (preliminary -0.7%) vs. Aug -0.8%
m/m, posting the third straight m/m fall and the fifth drop this year.
The drop was led by decreases in transport equipment, electric equipment
such as air conditioners as well as iron and steel.

Inventories: Sept revised +0.1% m/m (preliminary +0.2%) vs. Aug
+0.8% m/m, marking the second straight monthly rise and the seventh gain
this year. The rise in inventories was led by increases in electronic
parts and devices, iron and steel as well as transportation equipment.

The inventory-to-shipments ratio: Sept +1.3% m/m, unchanged from
preliminary reading vs. Aug -0.7% m/m, the first rise in two months.

The capacity utilization index: September -1.1% m/m at a seasonally
adjusted 87.3 (vs. 100 = 2005 average) vs. Aug -0.9%.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **

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