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

understands.

     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.

     --INCREASING TREND INTACT

     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.

     --AUGUST FORECAST EYED

     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: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

[TOPICS: MMJBJI,MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]