April Industrial Production

◆The April indices of industrial production recorded major growth at +4.0% m/m, while at the same time falling below market consensus at +4.2%. Results were especially strong, starting FY2017 off on an optimistic note. Meanwhile, the April shipping index grew for the first time in two months at +2.7%, with the inventory index growing for the fifth consecutive month at +1.5%, and inventory ratio growing for the second consecutive month at +2.9%.

◆The METI production forecast survey sees May performance down by -2.5% m/m, but then back up again in June at +1.8%. Assuming this projection can be upheld, the Apr-Jun period will reach +2.7% q/q. Growth was sluggish during the Jan-Mar period at +0.2% (+1.8% during the Oct-Dec period), but production is expected to get a lift in the future due to the recovery in the global economy, which should encourage exports to expand, while personal consumption is expected to hit bottom. Meanwhile, investments in labor-saving and rationalization to deal with the continued shortage of manpower is also expected to bring upward pressure on production.

◆Production is expected to experience moderate growth in July 2017 and beyond. Capital goods are expected to gain an upward push overall due to investments in labor-saving and rationalization to deal with the continued shortage of manpower. 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. As for overseas demand, exports to the US appear to be taking a breather, while exports to the EU and Asia are maintaining favorable performance, and are expected to help push up overall production.