MNI POLICY: BOJ Sees Q1 Production To Be Weaker Than Expected

Bank of Japan officials expect downward pressure on industrial production for the first quarter to be greater than they expected in January but see no need to change the bank's baseline view made in late January, MNI understands.

They judge that weaker production for the first quarter is largely caused by supply side reasons, such as the shortage of semiconductors and the shutdown of a Hitachi suspension plant damaged by the earthquake on Feb. 13.

Bank officials expect demand for goods, including automobiles, to remain firm and industrial production to recover after a temporary weakness.

Production adjustments in the automobile sector led by the shortage of semiconductors are lingering longer than bank officials expected in late January as car makers are struggling to get parts, increasing downward pressure on production in January and February, the BOJ views.

In addition, there will be more downward pressure on February production as Toyota Motor and Nissan Motors decided to halt production for several days due to the shutdown of the Hitachi suspension plant.

Bank officials expect exports and industrial production to continue to be supported by recovering manufacturers around the globe.

But factory output for the first quarter will slow from the previous quarter and February exports will slow as January exports were boosted by front-loaded exports to China before the Chinese New Year holiday.

Export fluctuations caused by the Chinese New Year are making it difficult for BOJ economists to examine the export underlying trend.