February Industrial Production

◆The February 2016 indices of industrial production was down by -6.2% m/m, suffering a decline for the first time in two months, while falling below market consensus at -5.9%. The shipment index was down considerably at -4.6% m/m. Meanwhile, inventories were down just slightly at -0.1%, with inventory ratio up by +0.5% m/m, for the first time in two months. Due to these results, the Jan-Mar period is likely to register negative growth, and may influence future fiscal policy. On the other hand, the METI forecast indicates that there are signs of gradual improvement in the future.

◆Production is expected to return to a gradual growth trend in the future. First of all, domestic demand is expected to improve as consumption bottoms out reflecting 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. As for overseas demand, a gradual recovery is seen though there will be ups and downs. The US economy continues to expand helped along by the steady undertone in the household sector, and this is expected to bring continued growth in Japan’s exports of durables. As for exports to the EU, the European economy is making a comeback thanks to the effects of falling crude oil prices and the ECB’s quantitative monetary easing, and the recovery trend is expected to continue. Meanwhile, in regard to the Asian economy, China’s real economy is showing signs of bottoming out due to the lowering of the ratio of cash reserves to deposits as well as interest rates, and it is very possible that further declines in demand can be avoided, centering on consumer goods.