MNI BRIEF: BOJ Vigilant Against Weaker Production in Q1

Bank of Japan officials are vigilant against weaker industrial production in the first quarter of 2023 as both exports and production are under pressure due to the slowing global economy and the shortage of semiconductors.

Japan's industrial output fell 4.6% m/m in January for the first drop in three months following a 0.3% rise in December, according to data from the Ministry of Economy, Trade and Industry released on Tuesday. The decrease was caused by weaker production of motor vehicles, production machinery and electronic parts and devices.

The focus is on whether bank officials will maintain the view that exports and production are expected to remain on an uptrend as the effects of supply-side constraints wane, while high levels of order backlogs for automobiles and capital goods provide additional support.

Bank officials don't expect both exports and production to be derailed from a recovery trend unless overseas economies, especially the U.S. economy, fall into a severe downturn. Officials worry a global slowdown would lead to a decline in exports of automobiles and capital goods due to order cancellations.

Motor vehicles production posted the first drop in two months, falling 10.1% in January following a 0.5% rise in December, showing automobile makers are suffering from a shortage of semiconductors that BOJ officials expected.

Based on its survey of manufacturers, METI projected that industrial production would rise 8.0% in February (revised up from a 4.1% increase forecast last month) and rise 0.7% in March. Adjusting the upward bias in output plans, METI forecast production would rise 1.3% on month in February. Based on this assumption, production would fall 3.1% on quarter in January-March, the second straight drop following a 3.0% fall in Q4.