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MNI POLICY: BOJ Disappointed by Weak July Output, Watching Q3

     TOKYO (MNI) - Bank of Japan officials are somewhat disappointed by weak
July industrial production data released Friday as they had expected some
factories to make up for the lost production caused by heavy rains in
southwestern regions early in the month that killed more than 200 people and
destroyed social infrastructure.
     But the BOJ is unlikely to immediately downgrade its latest assessment that
industrial production is "on an uptrend." BOJ economists want to see
July-September quarterly data to confirm the underlying trend.
     Industrial production fell 0.1% on month in July, coming in weaker than the
MNI median economist forecast of +0.3%, preliminary data released Friday by the
Ministry of Economy, Trade and Industry (METI) showed.
     The third straight monthly drop promoted METI to downgrade its view,
saying, "While production is picking up moderately, there are signs of weakness
in some areas." Previously, it simply said output was picking up moderately.
     The slight decrease in July was led by declines in output of passenger
cars, production machinery and steel, key export items.
     Based on METI's forecast that factory output will rise 1.2% on month in
August and gain 0.5% in September, production would slip 0.4% on quarter in
July-September, the first q/q drop in two quarters.
     BOJ economists are analyzing whether the sluggish production has been
caused by a decline in domestic or global demand.
     At this point, the BOJ expects industrial production continue to increase
firmly on the back of solid demand at home and abroad.
--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: MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$]

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