Japan’s Industrial Output Unexpectedly Falls in July

31 Aug 2015 | Author: | No comments yet »

Japanese Industrial Production Falls.

TOKYO — Japan’s industrial output unexpectedly fell in July in a worrying sign that high inventories and weak overseas demand could further hamper an economy struggling to recover from a slump in the second quarter. TOKYO—Japanese industrial production fell 0.6% in July from the previous month, the Ministry of Economy, Trade and Industry said Monday, as the nation’s economy continues to follow a zigzag path amid global uncertainty.Output fell 0.6 percent from June, when it increased 1.1 percent, the trade ministry said on Monday, compared with the median forecast for a 0.1 percent gain in Bloomberg survey. The iShares MSCI Japan ETF (EWJ) gained 10.1% this year. “[Industrial] production clearly lacks momentum,” noted Barclays‘ Yuichiro Nagai, who has gone cautious towards his outlook that the Japanese economy will pick up gradually in the third-quarter. The economy is expected to recover in July-September after a contraction in the previous quarter, but some economists are scaling back their expectations, bolstering the argument for fiscal stimulus to stave off a possible recession. “Our GDP forecasts were already at the bottom of the consensus, but the risks are to the downside,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

Household spending unexpectedly declined and the Bank of Japan’s key inflation gauge slowed to zero for a third time this year, data for July showed last week. “Production is sluggish because private consumption and exports remain weak,” said Toru Suehiro, an economist at Mizuho Securities Co. “Concern about China and emerging economies is posing a risk to output.” The yen held steady after the output data were released and was trading up 0.4 percent against the dollar at 121.28 at 9:13 a.m. in Tokyo. Be careful with the August number because it is likely to be overstated: For August, however, large increases were projected in electronic parts/devices (3.0%) and information/communications equipment (16.2%), the two industries with the greatest variation between actual and forecast production.

Industrial production “appears to be more fragile than expected,” wrote Credit Suisse‘s Hiromichi Shirakawa, adding:”The rate of growth remained around zero percent in yoy terms (+0.2% yoy) despite fading of the base effect of the April 2014 VAT hike.” Bank of Japan Governor Haruhiko Kuroda said in New York last week that weakness in production and exports would pass and that leading indicators point to a pick up in business investment. If output performs as forecast in August and September that would imply the economy grew 0.4 percent in the third quarter, but growth could be weaker as manufactures tend to be too optimistic, Capital Economics economist Marcel Thieliant wrote in a note.

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