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MNI INSIGHT: BOJ Expects Q4 Output to Rebound after Weak Q3

MNI (Beijing)
By Hiroshi Inoue
     TOKYO (MNI) - Japan's industrial production in the third quarter fell for
the first time in two quarters. Bank of Japan officials believe the weakness was
temporary and caused by natural disasters cutting supply, MNI understands.
     Those officials expect production to rebound around October after the
recovery of supply chains and infrastructure, barring a plunge in global demand.
     While BOJ officials overall don't believe that global demand is
disappearing, they are examining how sluggish this factor has been behind the
weak production in the data. The figures for September showed weak demand for
cars and electronic parts and devices.
     Industrial production fell 1.1% on month in September, according to data
released by the Ministry of Economy, Trade and Industry (METI). That is weaker
than the -0.3% projected by the median of forecast by economists surveyed by
     The first drop in two months was led by lower output of cars and
general-purpose vehicles, production and business oriented machinery. The latter
is closely linked to business investment.
     Production of transport equipment in September fell 2.5% from the previous
month following +4.6% in August. Shipments of capital goods excluding transport
equipment fell 3.2% in September following +4.7% in August.
     BOJ officials are paying attention to weak production of electronic parts
and devices (-0.6% in September following -9.0% in August) and how capital goods
excluding transport equipment may rebound.
     The METI maintain its view from last month and said that "while production
is picking up moderately, there are signs of weakness in some areas."
     Factory output may rise 6.0% on month in October (revised from +1.7%
predicted last month) and drop 0.8% in November, METI said. Adjusting the upward
bias in output plans, the METI forecast production to rise at a slower pace of
0.9% in October.
     If factory output rises 0.9% in October, falls 0.8% in November and stays
flat in December, the total in Q4 may fall 0.3% from Q3 following -1.6% in Q3.
     BOJ economists are focused on industrial production as a key indicator to
assess the economic outlook, as well as the production of transport equipment
and capital goods other than transport equipment, in which Japan has a
comparative advantage.
     Those economists expect Japan's Q3 GDP to temporarily slow or contract
given the weak production and exports. They expect Q4 GDP to rebound.
     The BOJ Q3 real export index fell 1.9% from Q2 following +0.6% in Q2.
Household spending fell 1.1% on month in July but rose 3.5% in August.
     The Cabinet Office will release Q3 GDP data on Nov. 14.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI Beijing Bureau; +86 10 8532 5998; email:

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