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Japan's industrial production posted the second monthly straight rise in April but production is expected to fall in May, increasing concerns over weaker production caused by the shortage of semiconductors in the second quarter.
Industrial production rose 2.5% m/m in April following +1.7% in March, thanks to higher production of general-purpose and business oriented machinery, electrical machinery, and information and communication electronics equipment.
The government left its assessment from the previous month unchanged, noting that "industrial production is recovering" and said it saw production falling 1.7% (revised up from -4.3%) in May before rising 5.0% in June.
Adjusting for the upward bias in output plans, the forecast production would fall 2.5% m/m in May. Based on this assumption, Q2 production would rise 3.1% q/q for the fourth straight rise following Q1's +2.9%.
Industrial output remains a key piece of data to aid BOJ economists assess the outlook, as it reflects both external and domestic demand, with the BOJ keeping the view that industrial production and exports have increased.
Bank officials were encouraged by solid shipments of capital goods excluding transport equipment (+15.2% m/m in April vs. -4.7% in March), which are used for capital investment.
As for the near-term outlook, the BOJ expects industrial production to continue increasing, largely supported by a global recovery in demand for business fixed investment and steady digital-related demand.
But the central bank has said that its pace of increase is expected to decelerate for the time being, affected by factors such as a shortage of semiconductors.
Bank officials don't expect the semiconductor shortages to be resolved in the second quarter.
Automobile makers decided to cut their production in the wake of the semiconductor shortages, reducing exports of automobiles to the U.S., which accounts for about 30% of Japan's exports to that country.
Weak production of automobiles will affect many industries, which are broadly linked to the automobile industry supply chain.