January 2017 Industrial Production

◆The January 2017 indices of industrial production declined by -0.8% m/m, falling below market consensus at +0.4%. This is the first time in six months that the index of industrial production has suffered a decline. The January shipping index was down for the second consecutive month at -0.4%, with the inventory index marking time at +0.0%. Inventory ratio grew for the second consecutive month at +1.7%. Both production and shipments suffered declines.

◆January results were influenced primarily by the Lunar New Year celebrations in the Sinosphere. This is considered to be one of the reasons that export volume was stagnant in January. Production appears to be taking a breather from its recent growth trend. The declines seen in the January index have not been accompanied by major declines in shipments or an increase in inventory. Hence there is no need for overly much pessimism.

◆The METI production forecast survey sees ups and downs in the future, with February performance up by +3.5% m/m and March production down by -5.0%. METI’s estimated forecast value for the February 2017 Indices of Industrial Production indicates growth of +1.1%.

◆Production is expected to experience moderate growth in April 2017 and beyond. Durable consumer goods are expected to maintain a steady undertone, with major household appliances purchased when the ecopoint incentive program was introduced approaching the culmination of their replacement cycle. In addition, the negative effects of preconsumption over demand as a result of last minute demand prior to the increase in consumption tax are gradually falling away. As for overseas demand, recovery is seen continuing for overseas economies, especially the US economy which continues to maintain underlying strength centering on the household sector. Exports are expected to make a gradual comeback.