MNI BRIEF: BOJ Focused On Q1 Industrial Production Recovery

Bank of Japan officials are focused on the strength of a recovery in industrial production in the first quarter of 2023 as exports and production came under pressure in the fourth quarter due to the semiconductor shortage, according to November industrial production data released Wednesday.

Japan's industrial production fell 0.1% m/m in November for the third straight m/m drop following a decline of 3.2% in October, the Ministry of Economy, Trade and Industry said on Wednesday.

Officials have maintained the view that waning supply-side constrains and the high levels of order backlogs are likely to alleviate downward pressure on Japan’s exports and production caused by slowdowns in overseas economies. However, they are worried that if slowing global growth intensifies or the timing of a pick-up is delayed significantly, then exports of automobiles and capital goods may decline rapidly due to cancellations of those orders.

The drop in November industrial production was caused by weaker production of general-purpose and business oriented machinery (which fell 7.9% vs. growth of 6.4% the prior month), and production machinery (which fell 5.7% vs. a decline of 5.4%). Motor vehicles production posted the first drop in two months, falling 0.8% in November following a rise of 5.6% in October, showing automobile makers reduced their production due to the shortage of semiconductors that BOJ officials expected.

Based on its survey of manufacturers, METI projected that industrial production would rise 2.8% on month in December (revised up from 2.4% growth forecast last month) and then fall 0.6% in January. Adjusting the upward bias in output plans, METI forecast production would fall 1.3% on month in December. Based on this assumption, production would fall 3.7% on quarter in October-December, the first drop in two quarters following a rise of 5.8% in Q3.