April Industrial Production

◆In Indices of Industrial Production (preliminary; Ministry of Economy, Trade and Industry [METI]), industrial production posted the fifth consecutive monthly gain in April (up 1.7% m/m) and overshot market expectations (up 0.6%), confirming that the underlying recovery continues. By industry, thanks to steady domestic sales and exports to the US, transportation equipment jumped (up 11.8% m/m), driving overall production. Reflecting higher production of MOS memory ICs for smartphones, electronic components/devices posted a gain, also contributing to pushing up overall production, while the industry projected a slide in the previous METI report.

◆The current METI survey projects overall production to remain flat 0.0% m/m in May and to decline 1.4% in June, meaning industries expect production to decelerate going forward. Although production has been firm in transportation equipment, the industry projects slides for both months, likely dragging down overall production.

◆The current METI projection was bearish, raising concerns that overall production could decelerate going forward. However, we believe production should continue to increase. Whether production sees a stable recovery will depend on the export volume trend, which is expected to gain momentum as effects of a weaker yen since end-2012 are likely to emerge in full swing with a lag. Another positive factor is the ongoing improvement in the inventory-shipment balance, meaning downward pressure arising from inventory adjustments has gradually weakened.