January Industrial Production

◆Industrial production increased for the second consecutive month in January (up 1.0% m/m), but fell short of the market consensus (up 1.5%). Production increased for the second consecutive month on a three-month moving average basis. The current METI survey projects overall production to increase going forward. Thus, the underlying production trend has begun to show improvement.

◆Production increased m/m in January for nine industries out of 16 for which data is available on a preliminary estimate basis. Among those posting advances, transportation equipment, iron/steel, and info/communications industries made notable positive contributions to overall production growth, in line with the industries’ upbeat projections in the previous METI report released in January.

◆The current METI survey projects overall production to increase 5.3% m/m in February and to advance 0.3% in March for the fourth monthly gain in a row. With regard to February, all industries expect increases from January. Specifically, info/communications, electronic component/device, and transportation equipment industries anticipate strong advances. However, these industries project production cuts in March, leading to slower growth vs. February for overall production. If February and March results match the METI forecast survey, production will likely increase in Jan-Mar 2013 for the first time in four quarters (up 5.9% q/q).

◆Production has begun to show signs of recovery, while export volume (an indicator that has a close correlation with production) has stagnated. Thus, whether or not production sees a stable recovery will depend on export trends. In this context, export volume is likely to increase going forward, as the environment for exports has begun to turn around amid a recovery in overseas economies and an improvement in price competitiveness triggered by a shift to a weaker yen. Accordingly, the ongoing production uptrend will likely continue going forward.