MNI INSIGHT: BOJ Sees Output Weaker, But Expects IP Make-Up

--Bank Expects Some Delated Recovery Of Disaster Hit Oct Output

By Hiroshi Inoue

     TOKYO (MNI) - The latest industrial production data was certainly a warning

shot for the Bank of Japan, but forecasts of weak output in both November and

December probably don't account for some snap-back of delays on the back of

October's natural disasters, MNI understands.

     However, there are still concerns over demand for automobiles and capital

goods as global demand slows.

     Industrial production, still a closely watch guide for overall demand in

the economy, fell 4.2% on month in October, after a gain of 1.7% in September,

government data showed, consistent with weak exports in the sectors for noted

above.

     The government assessment was unchanged, saying "production is weakening",

seeing production falling a revised 1.5% in November before rising 1.1% in

December. Adjusting the upward bias in output plans, the government forecast

production would fall 1.8% on month in November.

     Based on this assumption, production across Q4 would fall 4.3% q/q, a

second straight drop following the 0.5% fall in Q3.

     --LOWER ASSESSMENT

     The BOJ will likely lower its assessment from the current "industrial

production has been more or less flat."

     Production forecast for transport equipment, which accounts for about 20%

of total production and mainly automobiles and parts, is +1.2% in November and

-2.5% in December, the government survey showed.

     The latest survey runs up to Nov 10, but does according to the BOJ doesn't

yet include production to replace that lost during October's weather-related

disaster, including Typhoon Hagibis.

     --PRODUCTION RECOVERY EYED

     Industrial production will be boosted by a recovery in auto production, but

it will be weighed by continued weak external demand for automobiles and parts

as well as investment goods, with all eyes on the Dec 27 data release.

     The fall in private consumption post-sales tax, along with the typhoon

shock in October, are making it difficult for the BOJ to fully analyse the

latest data and even more than usual they are looking for data from coming

months, fully cognizant that it took 6 months for the full impact of the 2014

tax hike to become apparent.

--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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