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

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