Japan July Factory Output Slips But Pickup Trend Intact

--Japan July Industrial Output -0.8% M/M; MNI Median -0.4% 

--Japan METI Forecast Index: Aug Output +6.0% M/M, Sep -3.1% 

--METI: Adjusting For Upward Bias, Aug Output Seen +1.4%, Sep Flat

--Japan July-Sep Industrial Output Seen Up for 6th Straight Quarter

--Japan METI Maintains View: Output Shows Signs of Pickup

     TOKYO (MNI) - Japan's preliminary industrial production from the Ministry

of Economy, Trade and Industry released Thursday.

     * Industrial production posted the first month-on-month drop in two months

in July, falling a seasonally adjusted 0.8% in what the government called a

"relatively small reaction" to the strong 2.2% rise in June. The July result was

weaker than the MNI median forecast for -0.4% but production's recovery trend

remains intact amid a gradual pickup in both external and domestic demand.

     * The government maintained its assessment that factory output "shows signs

of a pickup," noting it rose 4.7% on year, the ninth straight year-on-year

increase, and the level of the Index of Industrial Production stood at 101.5 in

July, above the 101.0 average in the first six months of the year.

     * The decrease in July output was led by lower production of chip-making

machinery, turbines, electric machinery, chemicals and mini vehicles.

     * METI forecast for factory output based on its survey: +6.0% on month in

August (revised up from +3.6% projected last month); -3.1% in September. Based

on this projection, production in the July-September quarter is estimated to

rise 2.4% on quarter, which would be the sixth straight quarterly increase after

+2.1% in April-June.

     * Adjusting the upward bias in output plans, the METI projected production

would rise only 1.4% on month in August. On this assumption, the level of

production in September is likely to be flat or slightly lower than in August,

the METI said.

     * Shipments fell 0.7% on month in July, the first drop in two months after

+2.5% in June, while rising 4.1% on year, the ninth straight y/y increase.

     * Inventories fell 1.2% on month in July, for the second consecutive

month-on-month drawdown after -2.0% in June, and declined 2.4% on year for the

14th straight year-on-year fall after -2.9% in June. The buildup of industrial

inventories peaked in May and the level of inventories has fallen close to that

seen at the start of the year.

     * Shipments of capital goods excluding transport equipment - a key

indicator of the business investment component of GDP data - fell 4.4% on month

in July, the second consecutive drop after -0.9% in June, showing a slow start

to the July-September quarter.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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