July 2021 Industrial Production

◆The July 2021 indices of industrial production declined for the first time in two months by -1.5% m/m, while at the same time exceeding market consensus at -2.4%. Motor vehicles, a major component in the index, suffered a production cut due to the shortage in semiconductors and direct impact on the supply chain caused by lockdown measures in Southeast Asia in response to the spread of COVID-19. On the other hand, production grew in the area of semiconductor manufacturing equipment due to the persistent demand for semiconductors.

◆As for the future of industrial production, moderate growth is expected. Progress in the normalization of economic activity due to worldwide dissemination of the COVID-19 vaccine is expected to provide a push for production growth in a broad range of industries. Meanwhile, growth in production of semiconductors, such as integrated circuits and so on, as well as semiconductor manufacturing equipment is expected as a means of handling the worldwide shortage in semiconductors. Production of motor vehicles is also expected to experience make-up production, but the recovery is expected to be moderate due to the influence of spread of the COVID-19 infection in Southeast Asia, and the shortage in semiconductors. The Ministry of Economy, Trade and Industry’s Production Forecast Survey sees August 2021 production up by +3.4% in comparison to the previous month (or +0.1% when corrected for production plan bias, mode). Meanwhile, September is also expected to be up by +1.0%.

◆The July Indexes of Business Conditions is to be published on September 7, and the leading index, the composite indexes, is expected to be down by -1.1pt to 103.0, while the coincident index is expected to be down by -0.1pt to 94.4. Based on the predicted value, the assessment of the coincident index should be left unchanged at “improving.”