February Industrial Production

◆February 2014 indices of industrial production recorded the first decline in 3 months, down by -2.3% m/m, also falling below market consensus (+0.3% m/m). Growth in production had been expected due to last minute demand associated with the April 1 increase in the consumption tax, but instead production fell despite the positive outlook, adding an especially negative tone to this month’s results. However, the decline in production in February was due largely to major snowstorms which brought disorder to the distribution network and caused operations to stop in some areas, hence leaving our assessment unchanged regarding the continuation of the growth trend in production in the long run.

◆As for production by industry in February, eleven out of the total of fifteen industries recorded m/m declines, with production slowdowns in a broad range of industries. Transport machinery and general-purpose/production/business-oriented machinery had expected declines in February since the previous month’s production forecast survey, but actually suffered worse declines than were expected. In addition, the info/communications equipment industries, which had been expecting major increases in production, were down despite expectations, helping to push overall results further downward.

◆METI’s production forecast survey projects March results to grow by 0.9% m/m according to production plans, while April is expected to see a decline of -0.6%. March was expected to be down according to the previous month’s production forecast survey, but was revised upwards due to the sluggish results reported for February. On the other hand, April expects declines in production for most industries, with info/communications equipment contributing to the overall decline despite its increase in production in March. All in all, production is expected to peak out in March.