October 30, 2012
Summary
◆September industrial production declined 4.1% m/m, posting the third consecutive monthly
slide and a wider decline than the market consensus (down 3.1%). On a three-month moving
average basis, production declined for the sixth consecutive month, evidencing continuation of
the underlying downtrend. Although inventories declined for the second consecutive month
(down 0.9%), industrial shipments saw a substantial slide of 4.4%, leading to the first rise
(worsening) in the inventory ratio in two months (up 4.2%)
◆Production declined in September for 15 industries out of 16, displaying overall weakness. Mainly responsible for pulling down overall production were declines in production of the transportation equipment, general machinery, and iron/steel industries. In particular, production of the transportation equipment industry declined 12.6% m/m, the fifth consecutive monthly slide. Eco-car subsidies had driven automobile sales, but after the 21 September application deadline domestic automobile sales plunged, leading to a substantial fall in production of the transportation equipment industry.
◆We expect industrial production to remain weak for the time being because (1) production of the transportation equipment industry is likely to remain at a low level following an end to ecocar subsidies, and (2) shipments for export will probably continue to stagnate amid the slowdown in overseas economies. Production would firm up if exports gain momentum accompanying a recovery in overseas economies, but the EU economy, which has dragged down Japan’s exports, is unlikely to see any real recovery before 2013. Thus, no full-fledged turnaround in production is anticipated before then. Meanwhile, lower exports to China due to worsening Japan-China relations could place downward pressure on production, which warrants watching for the time being.
◆Production declined in September for 15 industries out of 16, displaying overall weakness. Mainly responsible for pulling down overall production were declines in production of the transportation equipment, general machinery, and iron/steel industries. In particular, production of the transportation equipment industry declined 12.6% m/m, the fifth consecutive monthly slide. Eco-car subsidies had driven automobile sales, but after the 21 September application deadline domestic automobile sales plunged, leading to a substantial fall in production of the transportation equipment industry.
◆We expect industrial production to remain weak for the time being because (1) production of the transportation equipment industry is likely to remain at a low level following an end to ecocar subsidies, and (2) shipments for export will probably continue to stagnate amid the slowdown in overseas economies. Production would firm up if exports gain momentum accompanying a recovery in overseas economies, but the EU economy, which has dragged down Japan’s exports, is unlikely to see any real recovery before 2013. Thus, no full-fledged turnaround in production is anticipated before then. Meanwhile, lower exports to China due to worsening Japan-China relations could place downward pressure on production, which warrants watching for the time being.
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