December Industrial Production

◆The December 2015 indices of industrial production was down by -1.4% m/m, its second consecutive decline, while falling below market consensus as well (-0.3%). The shipment index was also down considerably by -1.7% m/m, bringing overall negative results. Inventories were up slightly by +0.4%, with inventory ratio up by +0.4% m/m, both components seeing their second consecutive month of growth. However, the METI forecast sees an increase in production in the future despite ups and downs, suggesting that Japan’s economy will leave behind the recent temporary lull and begin heading toward recovery.

◆Production is expected to see some ups and downs, but ultimately return to a moderate growth trend in the future. As for domestic demand, recovery is expected for consumption, reflecting the improvement in real income for both working households and pensioners. Meanwhile, corporations have not lost their willingness to invest in domestic capex, and this should provide underlying support for demand in the area of capital goods. Overseas demand is also expected to return to a moderate recovery trend despite a mixture of both strong and weak points. In the US, economic growth continues with a strong undertone especially in the household sector. Exports to the US are expected to move into a growth phase centering on durable goods. In the Eurozone, the trend toward recovery is expected to continue, supported by cheap crude oil and the ECB’s quantitative easing which is helping to bring a comeback. As for the Asian economy, China’s ratio of cash reserves to deposits has been lowered along with its interest rates, and there are signs that the real economy has hit bottom. It is very possible that further declines in demand can be avoided, centering on consumer goods.