January 2018 Industrial Production

◆The January 2018 indices of industrial production recorded a major decline of -6.6% m/m, while market consensus fell also by -4.0%. Production cuts in transport equipment contributed greatly to overall decline, while in addition, all fifteen industries recorded declines.

◆The METI production forecast survey sees February performance up by +9.0% m/m, while March is to see more declines at -2.7%. Meanwhile, the estimated value for February is +4.7% (corrected for production plan bias). If February and March perform as expected by the METI production forecast survey, the Jan-Mar period will achieve growth of +0.2% q/q. However, if the estimated value for February records +4.7% with March coming in at -2.7%, the Jan-Mar period will suffer a decline of -2.5%. Considering the major production cuts in January, production may suffer a decline in the overall Jan-Mar period, meaning that the lull mentioned in the subtitle of this report will have made its appearance.

◆Production is expected to experience moderate growth in April and beyond. As for capital goods, the growth trend seen up till now may weaken, but favorable performance is expected to be maintained due to the expanding global economy. As for domestic capex, favorable corporate business performance and investment in maintenance and repair is expected to provide a boost to overall performance in 2018. However, caution is required regarding overseas demand due to possible downside risk. If US interest rates undergo a rapid rise in association with the Fed’s exit strategy, this could bring downward pressure on the US economy, while at the same time encouraging capital outflows from the emerging nations.