June Industrial Production

◆The June 2016 indices of industrial production grew for the first time in two months by +1.9% m/m. Rebound from the previous month’s major decline is a large part of positive results, but considering strength in comparison to market consensus (+0.5%) results are considered to be extremely good. Meanwhile, the METI production forecast survey sees growth continuing in July (+2.4%) and August (+2.3%). Even if we ignore the strength of production plans in areas which are often revised downwards at a later date, such as general-purpose, production and business related machinery and information communication & electronics equipment, we can conclude that growth in production will continue to a certain extent in the future. This is encouraged by the especially strong production plans of the electronic parts and devices industry where exports of ICs are in a growth trend.

◆Production is expected to experience ups and downs in the future. Personal consumption is expected to mark time due to sluggish growth in disposable income for working families and household income for pensioners. In addition, the earnings environment for corporations is worsening due to the progressively 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. As for overseas demand, though some goods are expected to maintain a firm undertone, overall demand is expected to mark time.