September Industrial Production

◆In Indices of Industrial Production (preliminary; Ministry of Economy, Trade and Industry [METI]), September industrial production saw the first m/m gain in two months (up 1.5%). Although undershooting market expectations (up 1.8%), it posted the first gain in two months on a three-month moving average basis. Thus, we maintain our view that production remains on a moderate underlying uptrend.

◆Production was mixed by industry, up m/m in nine, down in six. Among those that saw advances and pushed up overall production were assembling industries, such as transportation equipment, electronic components/devices, and info/communications equipment.

◆The production forecast survey projects a gain in overall production in October (up 4.7% m/m) and a slide in November (down 1.2%). Behind the strong figure for October are projections of substantial gains by general-purpose/production/business-oriented machinery (up 15.8%) and info/communications equipment (up 17.3%). However, September figures show that these two industries significantly undershot the projection of substantial gains for that month, which could be the result of likely delays in shipments. Hence, the production forecast survey should perhaps be discounted to some extent.

◆Going forward, we expect production to maintain the uptrend. While export volume moves in tandem with industrial production, it has slackened, centering on shipments to Asian trading partners, due to a slowdown in ASEAN economies. However, reflecting the weak yen and economic growth in the US, export volume is likely to return to an uptrend, driving production. Meanwhile, considering a likely acceleration in personal consumption centering on durable goods toward end-FY13 prior to the consumption tax hike scheduled for April 2014, and also taking into account public works projects likely maintaining the current high level, domestic demand will also lift overall production.