March Industrial Production

◆The March 2016 indices of industrial production was up by +3.6% m/m, registering growth for the first time in two months, while exceeding market consensus at +2.8%. However, on average, Jan-Mar period results ended on a negative note, with a decline of -1.1% on a q/q basis, making this the first time in two quarters for the index to record a decline. The shipment index was up just slightly at +1.4% m/m, while inventories grew by +2.8% and inventory ratio was up by +3.5% m/m, achieving growth for the first time in three months.

◆Production is expected to continue in a weak tone for some time. As is indicated in this month’s METI forecast, ups and downs are expected, but as of yet, the effects of the earthquake in Kyushu have not shown up in the index. Therefore, the realization rate for this forecast will likely be lower than usual. Complete recovery for domestic demand, especially for personal consumption, will likely take time due to sluggish growth for wages and household income for pensioners. In addition, the income environment for corporations is worsening due to the continuing strong yen, and this will very likely narrow the focus of domestic capex to labor-saving as a means of handling the shortage in manpower, research and development, and energy-saving.