— Adds Official, Economist Comments, Background Throughout
— METI Forecast Index: Japan Sep Output -0.1% M/M, Oct -2.9%
— METI Downgrades View: Japan Output Flat, Likely To Be Weak
TOKYO (MNI) – Japanese industrial production unexpectedly slumped
for a third month in a row in August, falling 0.3% on-month after -0.2%
in July and -1.1% in June, on lower demand for general machinery, liquid
crystal devices and trucks, data from the Ministry of Economy, Trade and
Industry Thursday showed.
Amid signs of a global economic slowdown, the seasonally adjusted
monthly drop in August came in much weaker than the consensus call of a
1.1% rise and far below the 1.6% m/m increase predicted for August by
the ministry’s forecast survey last month.
Moreover, output is seen continuing to decline in the coming two
months. METI’s survey of firms’ forecasts showed that production is
expected to dip by 0.1% m/m in September — revised down from the 0.2%
rise estimated in last month’s survey — before plunging by 2.9% in
October (first estimate).
Industries that are expected to show a decline in October output
are transport equipment, information and communication electronics
equipment as well as fabricated metals.
“Autos and electronics, which carry a heavy weighting in the index,
are pulling down overall industrial output,” a METI official said. “We
heard that the auto market is going to be weak in October and demand for
semiconductors is falling in both domestic and overseas markets.”
Motor vehicle sales have been supported by tax breaks and subsidies
for buying low-emission vehicles but automakers are concerned that
demand will shrink in the coming months since the government ended those
subsidies in September.
The government will maintain reduced tax rates for buying and
owning energy efficient cars and trucks but carmakers are adjusting
production in anticipation for a drop in sales.
Output of general machinery fell 1.1% m/m in August, partly in
payback for a sharp 4.3% rise in July, while iron and steel output
showed a fifth straight m/m drop, down 1.3% in August.
Based on the latest data and the outlook for the next two months,
the Ministry of Economy, Trade and Industry (METI) downgraded its
assessment from last month, saying, “Industrial production appears to be
flat and is likely to be weak.”
Previously it had said, “Industrial production continues to show an
upward movement although it has been pausing temporarily in part.”
It was the first downgrade since March 2009, when the METI said
output was stagnant and Japan’s economy hit bottom before recovering
from the global recession.
The drop in August output and outlook for additional declines,
combined with other recent subdued economic data, will put additional
pressure on the Bank of Japan to announce further credit easing steps at
its meeting next week.
But Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset
Management, said the Oct. 15 release of revised industrial production
data could see the 0.3% drop in August revised higher to a slight 0.1%
rise as the METI adds food, tobacco and medical sectors to its
“The heat waves in August boosted demand for food and beverages
while tobacco makers are obviously raising production to meet rush
purchases before the tobacco tax hike in October,” he said.
“Inventories are not building up so fast, so the recent slump in
production suggests that the economy will mark time in the
October-December and January-March quarters, as expected, and is
unlikely to plunge into a recession,” he projected.
On the other hand, Takumori said the dispute between Japan and
China over sovereignty of a southern island chain could hurt bilateral
trade, leading to reduced production.
In addition, Beijing’s call on Chinese tourists to refrain from
visiting Japan in the wake of the diplomatic row could dampen department
store sales and tourism in rural areas that rely heavily on spending by
Industrial output in the July-September quarter is now estimated to
fall by 1.1% from the previous quarter, based on the above forecasts.
In April-June, industrial production rose 1.5% from the previous
quarter, marking the fifth straight quarter-on-quarter gain but slowing
sharply from +7.0% in January-March and +5.9% in the final quarter of
Until June’s decline, output had gained every month since March
2009 except for the 1.1% 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 August this
year rose 15.4% y/y following +14.2% in July. 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: Aug -0.5% m/m vs. July -0.1% m/m, posting the second
straight m/m fall and the fourth drop this year. The drop was led by
decreases in transport equipment, general machinery and other
Inventories: Aug +0.7% m/m vs. July -0.5% m/m, marking the first
rise in two months and sixth gain this year. The rise in inventories was
led by increases in electronic parts and devices, general machinery as
well as information and communication electronics equipment.
The inventory-to-shipments ratio: Aug -0.9% vs. July +1.4% m/m, the
first drop in two months.
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