— Adds Economist, Official Comments
— Japan Oct Industrial Output +2.4% M/M; MNI Median Forecast +1.0%
— METI Forecast Index: Japan Nov Output -0.1% M/M, Dec +2.7%
— METI Keeps View: Japan Output Appears To Be Flat

TOKYO (MNI) – Japan’s industrial output rebounded in October, but
manufacturers presented mixed near-term prospects as the global slowdown
and the persistent strong yen threaten the sustainability of Japan’s
export-led recovery, government data showed Wednesday.

Production at the nation’s factories and mines rose a seasonally
adjusted 2.4% in October from the previous month after slumping 3.3% in
September, bringing the industrial output index up to 92.7, which was
still below the pre-disaster level of 97.9 in February.

The October headline figure beat the median forecast for a 1.0%
rise by economists in a Market News International survey.

The October rise was just above the 2.3% m/m gain predicted in the
ministry’s forecast survey released last month.

But METI’s latest survey of firms’ forecasts showed that overall
production is expected to fall 0.1% m/m in November — revised down
sharply from the 1.8% gain estimated in the previous survey — before
rising 2.7% in December (first estimate).

If the outlook for November and December is met, Q4 output will
rise 1.2% from Q3, a second straight quarterly increase, according to
the METI.

Based on the latest data and the outlook for the next two months,
METI maintained its overall assessment, saying: “Industrial production
appears to be flat.”

The environment for Japan’s export-driven recovery does not bode
well for industry production.

The latest trade data showed that exports fell 3.7% to Y5.51
trillion in October from a year earlier, the first fall in three months,
hit by a combination of slower global demand, the strong yen and supply
chain constraints caused by the flooding of factories in Thailand.

Domestic output of digital cameras fell in October as makers were
unable to procure parts from Thailand, a factor that is expected to lead
production of information and communication electronics equipment to a
fourth straight monthly drop in November, a METI official said.

On the downside, the high yen is making Japanese goods more
expensive overseas, which will put a lid on the domestic output recovery
from the March earthquake disaster toward year-end and early 2012, said
Junko Nishioka, chief economist at RBS Securities.

But on the upside, she said: “A temporary shift of production from
Thailand to Japan due to the massive flooding appears to be supporting
industrial output and is likely to continue doing so in the coming
months.”

Judging from inventory levels, the pressure on manufacturers to
adjust inventories is not so strong, which means industrial output has a
good chance of resuming some upward momentum in the latter half of next
year, she said.

Production of car parts rose in October as Japanese manufacturers
increased domestic output to make up for the lost production in
Thailand, a METI official told reporters.

In October, output of transportation equipment — mostly
automobiles — rose 11.6% from the previous month, marking the first
rise in two months after falling 5.9% in September.

By contrast, production of electronics parts and devices, which are
sensitive to changes in the economic cycle, fell 5.5% for a second
straight monthly fall in light of sluggish global demand for chips.

Inventories of semiconductors was up 4.9% m/m, the first rise in
three months, due mainly to sluggish shipments to Asia, the METI
official said.

Compared with year-earlier levels, Japan’s industrial production in
October rose 0.4%, marking the first rise in two months after falling
3.3% in September.

Other details from the latest data:

Shipments: Oct +0.6% m/m vs. -2.0% in Sep, the first rise in two
months.

Inventories: Oct +0.8% m/m vs. -0.1% in Sep, also the first gain in
two months.

The inventory-to-shipments ratio: Oct -1.1% vs. +3.8% in Sep, the
first drop in two months.

tokyo@marketnews.com

** Market News International Tokyo Newsroom: 81-3-5403-4835 **

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