MNI: Japan Aug Industrial Output -3.2%, September View Weaker

Bank of Japan concerns over a near-term economic recovery have increased after a sharp drop in August industrial production in the wake of supply chain disruptions and a projection of a further decline for September, MNI understands.

Bank officials will maintain the view that exports and production will fall in the short run but are likely to rebound when inventories are restocked and supply-side constraints are eased, see: MNI INSIGHT: Capex Trend A Concern For BOJ Rebound Outlook.

However, they don't have clear picture on a recovery timeline due to uncertainties over the impact of the vaccine rollout in Southeast Asia. As well, Japan's automobile makers plan to cut their production in September and October.

Earlier this month, bank officials expected a return to pre-pandemic GDP levels in the first quarter of 2022, as earlier estimates of a V-shaped economic recovery in the fourth quarter are unlikely.

Ahead, the BOJ is gathering information from various manufacturers as the automobile makers are broadly linked to many industries.

DATA PICTURE

Japan's industrial production slumped 3.2% m/m in August, marking a second straight monthly drop following a 1.5% dip in July as lower production of motor vehicles, electrical machinery, and information and communication electronics equipment as well as production machinery weighed.

Also see: MNI BRIEF: Japan Aug Retail Sales Post 1st Drop In Six Months.

The government also lowered its assessment from the previous month, noting "industrial production is marking time" and sees production rising 0.2% (revised from +1.0%) in September before further rising 6.8% in October.

Adjusting the upward bias in output plans, the forecast production would fall 1.3% m/m in September. Based on this assumption, Q3 production would fall 2.1% q/q for the first drop in five quarters.

FORECAST UNCERTAINTY

Industrial output remains a key piece of data to aid BOJ economists assess the outlook, as it reflects both external and domestic demand.

However, the forecast didn't include a planned reduction in automobile production by major Japanese makers as the survey showed the figures as of the 10th of the month and the production forecast will be revised down further.

Automobile production fell 15.2% m/m in August for the second straight drop following -3.3% in July, and auto production will be under further downward pressure due to the supply-chain restrictions.

Production of electrical machinery fell 8.4% m/m in August for the second straight drop following -4.6% in July.

Shipments of capital goods excluding transport equipment, which are used for capital investment, fell 4.7% m/m in August following -0.7% in July, indicating that the pace of capex is slowing at home and overseas.