— Adds Official, Economist Comments, Details Throughout
— Japan Dec Industrial Output +3.1% M/M Vs Nov +1.0% M/M
— Japan Dec Industrial Output MNI Poll Median Forecast +2.8%
— METI Forecast Index: Japan Jan Output +5.7% M/M, Feb -1.2%
— METI Upgrades View: Japan Output Now Signals Upward Move
— Japan Oct-Dec Industrial Output -1.7% Q/Q Vs Jul-Sep -1.8%
— Japan Dec Industrial Output +4.6% Y/Y Vs Nov +5.8%
— Japan Dec Output Led by Passenger Cars, Electronic Devices

TOKYO (MNI) – Japanese industrial production rose at a
faster-than-expected pace in December as the drag from the end to
subsidies for buying low-emission vehicles in September continued to
ease, data from the Ministry of Economy, Trade and Industry released on
Monday showed.

Production at the nation’s factories and mines rose a seasonally
adjusted 3.1% in December from the previous month, bringing the
industrial output index up to 94.6, the highest since 94.8 marked in
July 2010.

The December production rise was stronger than the median forecast
in a Market News International survey of a 2.8% gain.

The December rise, which was the second-straight monthly rise,
followed a rise of 1.0% in November, the first increase in six months.

But the seasonally adjusted monthly rise in December came in below
the 3.4% m/m gain predicted in the ministry’s forecast survey last
month.

METI’s survey of firms’ forecasts showed that overall production is
expected to surge 5.7% m/m in January — revised up from the 3.7% rise
estimated in last month’s survey — but it will fall 1.2% in February
(first estimate).

Based on the latest data and the outlook for the next two months,
METI upgraded its assessment, saying that industrial production “is
showing signs of an upward movement.”

In November, it asserted that “industrial production has weakened.”

Industrial output will rise 7.4% in the January-March quarter from
October-December based on METI’s forecast that production will gain 5.7%
m/m in January and fall 1.2% in February and assuming that it will be
unchanged in March from the previous month, a METI official said.

But the official cautioned that distorted seasonal adjustments
caused by the collapse of Lehman Brothers in 2008 tend to make output
look stronger than it really is in January-March and weaker in
April-June.

In the final quarter of 2010, production fell 1.7% from the
previous three months, marking the second straight quarterly drop after
-1.8% in July-September and +1.5% in April-June.

December’s 3.1% rise was largely led by demand for Japanese cars in
North America and Europe, he said. Electronic parts and devices, another
driver behind the second-straight m/m rise in December, saw demand
coming equally from both domestic and overseas markets, said the
official.

“Domestic demand for new vehicles has apparently stopped falling
and overseas demand is steadily recovering thanks to a robust growth in
emerging markets, paving the way for a steady recovery going forward,”
said Taro Saito, senior economist at NLI Research Institute.

Automakers, which carry a heavy weighting in the index, are
preparing to boost their production thanks to brisk demand outside of
Japan. They had slashed output in the preceding months after the
government ended its subsidy program in September.

In December, output of transportation equipment — mostly
automobiles — rose 5.1% from November following a 4.5% rise in the
previous month.

It was led by +5.7% in production of small passenger cars with
engine displacement of over 660cc and less than 2000cc and +5.6% in
assembly of large passenger cars with engine displacement of over
2000cc.

While industry leader Toyota Motor continued to slash its domestic
output, its smaller rivals such as Nissan Motor and Mazda Motor hiked
their production to deal with recovery in overseas demand.

Still, new vehicle sales in Japan fell 28.3% from a year earlier to
179,666 units in December, the fourth consecutive y/y fall after -30.7%
in November, according to the latest data from the Japan Automobile
Dealers Association.

The government ended its subsidy program in September but will
maintain reduced tax rates for buying and owning energy-efficient cars
and trucks.

Meanwhile, production of Information and communication electronics
equipment (flat-screen TVs and mobile phones) also showed a sign of
recovery, up 7.4% in December, the first m/m rise in three months after
falling 6.1% in November.

Many shoppers rushed to retail stores before Dec. 1, when the
government halved the reward points it offers for buying TVs, air
conditioners/heaters and refrigerators that require less power to
operate.

This caused a pullback in sales of consumer electronics in December
but NLI’s Saito downplayed the significance of swings in demand for
greener consumer electronics stemming from lower reward points in the
government-sponsored program.

“Expected swings in demand for electronics is unlikely to shake the
recovery trend, compared with the effects of fluctuations in demand for
automobiles” he said.

Until June’s month-on-month decline, Japan’s overall industrial
output had gained every month since March 2009 except for the 0.6% drop
in February 2010. 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.

Until June 2010, 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 December rose
4.6% y/y, decelerating from +5.8% in November.

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: December +1.1% m/m vs November +2.6% m/m, posting the
second straight monthly rise. The rise was led by gains in electronics
parts and devices as well as transportation equipment.

Inventories: December +1.4% vs November -1.8%, marking the first
m/m rise in three months. The rise in inventories was led by gains in
information and communication equipment as well as electronics parts and
devices.

The inventory-to-shipments ratio: December unchanged m/m vs
November -8.3%.

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

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