MNI BRIEF: Japan Output Forecast Could Make BOJ Cautious

Japan's industrial output fell 7.5% m/m in January for the first drop in two months following December's 1.4% rise, driven largely by the decline of automobile production and general-purpose and business oriented machinery, data released by the Ministry of Economy, Trade and Industry showed on Thursday.

The fall however will not shake the Bank of Japan's outlook as the halt of auto production, which declined 17.8% m/m in January for the first drop in two months following +1.1% in December, was temporary.

Based on its survey of manufacturers, METI projected industrial production would rise 4.8% in February (revised from last month's 2.2% forecast) before rising 2.0% in March. Adjusting the upward bias in output plans, METI forecast production would rise 0.8% m/m in February.

Based on this assumption, production will fall 5.7% q/q over Q1, the first drop in two quarters following Q4's 1.3% increase. The ministry lowered its assessment from the previous month, saying industrial production is weakening while it is marking time.

The BOJ has noted overseas developments have affected industrial production, but it has been more or less flat. (See MNI POLICY: BOJ Sees Intact Recovery, Policy Change Ahead)