July Industrial Production

◆The July 2015 indices of industrial production was down by -0.6% m/m, suffering a decline for the first time in two months, as well as falling below market consensus (+0.1%). The shipment index was also down for the first time in two months at -0.3% m/m, and the inventory ratio index was down for the second consecutive month at -1.1%. This month’s results confirm that Japan’s economy has entered a temporary lull. Stagnant exports and the resultant accumulation of inventory have pushed production into an adjustment phase, with results marking time at a relative low. However, this has also encouraged moderate progress in inventory adjustment.

◆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 is expected due to gradual improvement in consumption, reflecting the continued increase in domestic capex and improvement in real income for both working households and pensioners.