January Industrial Production

◆The January 2016 indices of industrial production was up by +3.7% m/m, achieving growth for the first time in three months, while exceeding market consensus somewhat at +3.2%. The shipment index was also up +3.4% m/m in a fairly major recovery. Inventories were down just slightly at -0.3%, with inventory ratio up down by -2.1% m/m, both components seeing declines for the first time in three months. However, the METI forecast sees production experiencing ups and downs in the future.

◆Production is expected to see ups and downs for a bit longer. The turmoil experienced in the global financial markets at the beginning of the year make it clear that it will take some more time before overseas demand recovers completely and shows a real sustainable recovery. Falling crude oil prices and the strong dollar are a drag on the US corporate sector, while the need to continue adjustments to handle excess capacity in Asia likely means a continuation of unfavorable conditions for Japan’s exports of capital goods and materials. However, domestic demand should improve in the future, with recovery 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.