MNI INSIGHT: BOJ Encouraged By Output Rebound; Q4 In Focus

--BOJ Board Likely To Maintain View Production On 'Increasing Trend'

By Hiroshi Inoue

     TOKYO (MNI) - Japan's industrial production rebounded in October, as

expected by Bank of Japan officials following a rise in exports, but optimism is

more muted for the outlook, amid continued uncertainty over the global economy,

MNI understands.

     Those officials expect industrial production, along with exports, to rise

in the fourth quarter following their Q3 dip on the back of a series of natural

disasters. Officials now want to see how production evolves in November and

December to give a clearer underlying trend for the fourth quarter.

     BOJ officials believe demand for capital investment overseas remains solid

but they are paying attention to how a slowing Chinese economy and lingering

trade friction affects capital investment and overseas demand for Japan's goods.

     The BOJ board will likely maintain their view that "industrial production

has been on an increasing trend" when they convene for a two-day policy meeting

on Dec 19-20.

     --OCT OUTPUT REBOUNDS

     Industrial production rose 2.9% on month in October, coming in stronger

than the MNI median economist forecast of +1.2% and posting the first

month-on-month rise in two months and follows a 0.4% fall in September, data

released Friday by the Ministry of Economy, Trade and Industry (METI) showed.

     In the main bright spots, shipments posted a first m/m rise in two months,

up 5.4% on month in October following a 2.0% fall in September. Against that,

both inventories (-1.4% on month) and inventory ratio (-7.4% on month) both

posted their first m/m drop in two months.

     Shipments of capital goods excluding transport equipment, which are used

for capital investment at home and overseas, rose 5.3% on month in October after

-2.0%.

     Production of electronic parts and devices rose 8.6% on month in October,

reversing from -1.2% in September. Production of transport equipment rose 4.6%

on month, also improving from -1.7% in September.

     --Q4 SEEN RISING

     Based on its survey of manufacturers, METI projected that industrial

production would rise 0.6% on month in November (revised up from -0.8% forecast

last month) and gain a further 2.2% in December.

     Adjusting the upward bias in output plans, METI forecast production would

fall 2.1% on month in November. Based on this assumption, production would rise

2.1% on quarter in October-December, the first rise in two quarters following

-1.3% in the July-September period.

     METI upgraded its assessment from the previous month, saying, "production

is picking up moderately." The previous assessment was "While production is

picking up moderately, there are signs of weaknesses in some areas." 

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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