UPDATE 2-Japan July industrial output falls, signals laboured economic recovery

31 Aug 2015 | Author: | No comments yet »

Japan Industrial Production Slips 0.6% In July.

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 month-on-month fall compared with economists’ median estimate of a 0.1 per cent increase and followed a 1.1 per cent rise in June, data by the Ministry of Economy, Trade and Industry showed. 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 world’s third-biggest economy is struggling to recover from a contraction, as slowing growth in China — Japan’s biggest trading partner — weighs on exports. The world’s third largest economy has been struggling to get back on a steady recovery track following a consumption tax increase from 5 percent to 8 percent implemented in April past year. 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.

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. 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. Prime Minister Shinzo Abe’s cabinet has indicated that it won’t be stirred into action so soon, but calls for more fiscal spending could grow if economic data do not start improving. “Companies tend to be too optimistic about future production levels”, said Thieliant.

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.”

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