MNI INSIGHT: BOJ Sees Solid Q1 Output; Cautious on Phones

By Hiroshi Inoue 

     TOKYO (MNI) - Bank of Japan officials believe that industrial production

will generally stay on a moderate uptrend in the January-March quarter,

weathering projected sharp fluctuations, MNI understands.

     BOJ officials expect solid demand for automobiles to continue for the time

being, supporting Japanese exports and thus GDP growth in Q1. The economy

appears to have posted slower but solid growth in Q4 after robust

above-potential expansion in the previous two quarters.

     At the same time, the officials are closely watching for any adverse

effects from a reported decision by Apple to slash its production target for the

iPhone X on Japanese exports and production.

     The Nikkei reported on Monday that Apple notified suppliers that it had

decided to cut the first-quarter production target to around 20 million units,

in light of slower-than-expected sales in the year-end holiday shopping season

in key markets such as Europe, the U.S. and China.

     --STRONG Q4 FACTORY OUTPUT

     As for the final quarter of 2017, government data released Wednesday

indicated solid economic expansion.

     The index of industrial production posted the third straight month-on-month

rise, higher by 2.7% in December to a seasonally adjusted 106.3 (100 in 2010),

the highest in more than nine years. It came in stronger than the MNI median

economist forecast of +1.5 and the pace of increase accelerated from +0.5% in

November.

     In the October-December quarter, factory output rose 1.8% on quarter,

posting the seventh straight quarter-on-quarter increase. This led to a 4.5%

rise in the whole of 2017, the first gain in three years.

     Based on the government's survey of manufacturers, industrial production is

forecast to fall 4.3% on month in January (revised up from -4.5% projected last

month) before rebounding by 5.7% in February.

     --Q1 OUTPUT SEEN UP

     Adjusting the upward bias in output plans, the government projected

production would fall 4.3% in January. Based on this assumption, Q1 factory

output would still show a solid 1.2% gain on quarter.

     Industrial output 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.

     BOJ officials are closely monitoring the output in the first quarter as it

tends to fluctuate more widely than in other quarters.

     They are also keeping a close eye on developments in output linked to

automobiles as well as electronic parts and devices, which are influenced by

overseas demand.

     The output of transportation equipment is forecast by METI to fall 17.7% on

month in January (revised down from -16.0% predicted last month before rising

9.8% in February while that of electronic parts and devices is projected to rise

4.8% (revised up from -3.0%) in January and gain a sharp 13.5% in February.

     METI's latest survey of manufacturers was conducted by Jan. 10, which means

the robust forecast for electronic parts does not reflect any concerns that may

be caused by the report on Apple.

--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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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