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By Hiroshi Inoue
     TOKYO (MNI) - August's renewed slowdown in industrial production did little
to soothe nerves at the Bank of Japan that the pick-up in the global slowdown
will be delayed, dimmming the economic outlook at home and risking a slowing in
momentum to higher inflation, MNI understands.
     The BOJ will re-examine economic and price developments at the October
policy meeting, increasing he the possibility it will consider conducting
further easing, having already stated it "will not hesitate" in taking
additional easing measures if there is an increased risk to losing the momentum
toward achieving its price target.
     Industrial production fell 1.2% on month (vs the MNI median forecast of
-0.5%), reversing July's 1.3% gain, weighed by lower production for machinery
and motor vehicles, and iron, steel and non-ferrous metals.
     Against that, production for electronic parts and devices rose, indicating
the adjustment of IT-related goods -- a sector closely watched by BOJ economists
- may have troughed.
     Shipments of capital goods excluding transport equipment, another key focus
for the BOJ, rose 2.4% in August following a 0.2% gain in July and a 5.0% fall
in June.
     The bounce back from June's fall was tepid, as capital investment
decelerated overseas amid the sustained global slowdown and the weak August data
may prompt the BOJ to lower its assessment that industrial production has been
"more or less flat."
     Production has been weighed by weak exports in recent months, but found
some support from demand linked to capital investment aimed at improving
efficiency amid labor shortages at home and BOJ economists continue to focus on
whether that domestic demand remains solid despite the overseas weakness.
     The government lowered its assessment on industrial production, noting it
has been "in a weak tone recently." The previous view was "production is marking
time." Production is seen rising 1.9% (revised up from -1.6%) in September
before falling 0.5% in October. Adjusting the upward bias in output plans, METI
forecast production would rise 0.3% on month in September.
     Based on this assumption, production for the July-September quarter would
fall 0.9% q/q, after a gain of 0.6% in Q2 and a fall of 2.5% in Q1.
     The BOJ remains cautious, though, as the realization ratio - the real
amount of the previous month in the current time's survey divided by the
estimated amount of the current month in the previous time's survey -- remained
weak in August, down 3.3% following down 1.3% in July following falls of 2.2% in
June and 2.5% in May.
--MNI London Bureau; tel: +44 203-586-2225; email:
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MNI London Bureau | +44 203-865-3812 |