June Industrial Production

Indications that production may be bottoming out soon

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  • Shunsuke Kobayashi

Summary

◆The June 2015 indices of industrial production was up by +0.8% m/m, achieving growth for the first time in two months, as well as exceeding market consensus (+0.3%). The shipment index was also up for the first time in two months at +0.3% m/m, while the inventory index grew for the first time in two months at +1.3%.


◆This month’s results confirm that the Japanese economy has been experiencing a temporary lull. Though the month’s performance ended in an increase for production, momentum was weak. Production is entering an adjustment phase due to stagnant exports and the subsequent buildup in inventory. According to the METI forecast survey, July production is expected to continue marking time at +0.5% in comparison to the previous month, with the soft patch continuing in the future. However, hints of a recovery centering on the materials industries, which had maintained a soft tone until now, provides a positive note. August production plans according to the forecast survey see relatively high growth at +2.7% m/m, indicating that production may be bottoming out in the near future.


◆As for the future of industrial production, the growth trend is expected to return once the temporary adjustment has run its course. Overseas demand is expected to gradually recover. The adjustment phase has been continuing for capital goods in the US with a strong dollar and cheap crude oil, but demand for consumer goods remains favorable. In the Eurozone, the trend toward recovery is strengthening, supported by the weak Euro, cheap crude oil, and monetary policy. Meanwhile, emerging markets centering on China are beginning to show signs of bottoming out with news that US interest rates will be moving up and the effects of domestic monetary policy. As for domestic demand, recovery followed by expansion is expected due to rising consumption reflecting the continued increase in domestic capex and improvement in real income for both working households and pensioners.

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