July Industrial Production

◆The July 2016 indices of industrial production marked time at +0.0% m/m, while falling below market consensus at +0.8%. Meanwhile, the shipping index grew for the second consecutive month at +0.9%, and the inventory index declined for the first time in three months at -2.4%. Inventory ratio grew for the first time in two months by +0.9%. Production shows a weak tone with shipments growing and inventory on the decline. Progress in inventory adjustment appears to be bringing downward pressure on production. The METI production forecast survey sees August up by +4.1% m/m, but then September down again by -0.7%. Considering the fact that August production plans tend to be revised downwards considerably, it is likely that the index will generally continue to mark time. Inventory level remains high, hence there is a good chance that production will continue in a weak tone.

◆Production is expected to experience ups and downs in October and beyond. Meanwhile, 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.