MNI INSIGHT: Supply-Chain Gaps A BOJ Concern For Q3 Manufacturing

A rebound in automobile production hinges on an easing of supply chain disruptions that Bank of Japan officials are uncertain can recover rapidly enough to feed a manufacturing rebound in the third quarter, MNI understands.

Bank of Japan officials expect industrial production to recover in or after the third quarter as lockdowns in China were lifted on June 1, but they are wary that downward pressure from supply-chain gaps for parts and equipment will prevent automakers from ramping up output as much as planned.

Data on Thursday showed Japan's industrial output fell 7.2% m/m in May and automobile output dropped 8.0%. The realization ratio of transport equipment fell 12.6% m/m in May, indicating that the expected strong automobile production forecast made for June and July will be revised down.

The May data however was largely within BOJ forecast and the June 17 policy meeting highlighted that “exports and industrial production have continued to increase as a trend, but the effects of supply-side constrains have intensified lately.”

But based on its survey of manufacturers, METI projected that industrial production would gain 12.0% on month in June, and rise 2.5% in July.

The BOJ's June Tankan survey is due on Friday and is expected to show sentiment among major manufacturers has worsened, but the officials are also looking for recovery signs as well in manufacturing outside of automobiles (See: MNI: BOJ Tankan Expected To Show Downbeat Manufacturing-Survey).