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MNI INSIGHT: BOJ Sees Aug Output Rise After Disaster-Hit Drop

By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials expect factory production to fall in
July in a supply chain breakdown caused by massive rainfall in southwestern
Japan, but they expect output to rebound in August as firms try to catch up, MNI
     At the same time, BOJ officials are also looking at the possibility of a
slower progress in repairing major highways connecting the disaster zone to the
rest of the country. Even if factories are restored, manufacturers still need
distribution routes to reopen for securing parts and devices.
     Downpours in the first week of July caused severe flooding and mud slides
in wide areas, killing more than 200 people and destroying homes, roads and
lifeline infrastructure.
     Newspapers reported that the trunk road shutdowns caused temporary
shortages of parts supplied to and from western Japan, forcing some automakers
including Mazda and Daihatsu to suspend production. Panasonic also temporarily
halted its production of video cameras.
     The disaster also caused suspension of home and office delivery services.
     For now, BOJ officials don't see the need to change their baseline view
that industrial production has been on an uptrend. They are gathering
information on the damage from the disaster as factory operations and supply
chain networks have been partially restored.
     Industrial production is a key piece of data for BOJ economists to assess
and predict the pace of the current modest economic recovery as it reflects both
external and domestic demand.
     Before the disaster, the Ministry of Economy, Trade and Industry forecast
production would slip 0.1% on month in June and rebound 0.8% in July but its
July forecast is expected to be revised down later this month.
     Based on this assumption, factory output would rise 1.9% on quarter in
April-June, the first rise in two quarters. In January-March, output slumped
1.3% from October-December, marking the first q/q drop in eight quarters.
     BOJ officials are focused on METI's production forecast for July and August
when it releases June output data on July 31, hours before the BOJ announces the
outcome of its two-day policy meeting.
     Industrial production, particularly passenger cars and other vehicles,
tends to fall in January, May and August due to the New Year's, Golden Week and
summer holidays, but BOJ officials expect output to rise in August as factory
operators tried to catch up.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:

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