MNI POLICY: BOJ Sees Factory Output Uptrend After Q2 Pickup

     TOKYO (MNI) - Despite a larger-than-expected drop in June factory output,

the Bank of Japan will stick to its view that industrial production is on an

uptrend as it rebounded in the April-June quarter, MNI understands.

     In its last quarterly Outlook Report issued in April, the BOJ said,

"Industrial production will likely continue to increase firmly for the time

being on the back of the increase in demand at home and abroad."

     The BOJ will release the next report later on Tuesday after its two-day

board meeting.

     Looking ahead, BOJ economists expect industrial production to slump in July

due to a major transportation breakdown and wide-spread damage to social

infrastructure in southwestern Japan caused by severe rainfall in the month.

     But they also believe industrial production will recover in August and

September.

     BOJ economists have received information that the supply chain networks are

recovering gradually and that damage to business equipment is limited. However,

massive flooding and mud slides caused serious damage to vegetable and fruit

farms.

     Industrial production fell 2.1% on month in June, coming in weaker than the

MNI median economist forecast of -0.4%, data released Tuesday by the Ministry of

Economy, Trade and Industry (METI) showed.

     But Japan's industrial production for the April-June period rose 1.2% on

quarter for the first rise in two quarters after -1.3% in January-March.

     METI's survey shows industrial production is expected to rise 2.7% in July

and gain a further 3.8% in August.

--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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