May Industrial Production

◆The May indices of industrial production recorded a decline of -3.3% m/m, while at the same time falling below market consensus at -3.0%. Almost all industries suffered declines, though most of these are considered to have been due to a reactionary decline in response to the previous month’s major gains in production. The May shipping index also declined for the first time in two months at -2.8%, while the inventory index grew, though only slightly, for the sixth consecutive month at +0.1%, and inventory ratio declined for the first time in three months at -1.9%.

◆The METI production forecast survey sees June performance up by +2.8% m/m, but then down again in July at -0.1%. While May results suffered a reactionary decline in response to April’s major gains, production is considered to be maintaining its growth trend on average. Assuming the June projection of +2.8% can be upheld, the Apr-Jun period will reach +2.4% q/q. Even if June results mark time, q/q growth should come in at +1.5%. 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 expansion of exports centering on the EU, while personal consumption is expected to hit bottom.

◆Production is expected to experience moderate growth in August 2017 and beyond. Capital goods are expected to see an increase in production due to favorable orders, but a reactionary decline could also occur due to the high level of performance recorded up till now. 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, automobile exports to the US appear to be taking a breather as well as IC exports to China, while exports to the EU are maintaining favorable performance with that region entering a growth phase. This is expected to help push up overall production.