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Free AccessMNI POLICY: Japan July Output Rallies; Gov't Sees Q3 Recovery
Japan's industrial production rose for a second consecutive month in July, boosted by auto production, general manufacturing, and iron and non-ferrous metals output.
Bank of Japan officials expected output to rebound in July but bank officials, but see it stuck at low levels for some while as it will take time for capital goods to rebound fully.
July's 8.0% m/m bounce will help the BOJ upgrade its assessment at the September 16-17 policy meeting, having previously said output had declined substantially.
Industrial output remains a key piece of data to aid BOJ economists, helping assess and predict the outlook, as it reflects both external and domestic demand.
CAR OUTPUT JUMPS
Car production rose 38.5% m/m in July after rising 28.6% in June and falling 24.3% in May and 36.6% in April, underpinned by July's higher exports. However, the level of motor vehicle production remained 25% below year ago levels.
Transport equipment accounts for about 20% of Japan's total output, with the auto industry alone accounting for about 3% of Japan's GDP. Shipments of capital goods excluding transport equipment fell 0.9% m/m in July following a 6.7% gain in June, suggesting many firms remain cautious about implementing capital investment, although demand for research and development remains solid.
Production for electronic parts and devices rose 4.4% m/m in July for a second straight rise following the 0.6% in June, consistent with export data , with BOJ officials now focusing on whether production will continue to improve in coming months.
Q3 SEEN REBOUNDING
The government upgraded its assessment from the previous month, noting "industrial production shows picking up movement" and sees production rising 4.0% (revised up from +3.4%) in August before further rising 1.9% in September.
However, adjusting the upward bias in output plans, the forecast production would fall 1.7% m/m in August. Based on this assumption, Q3 production would rise 5.3% q/q for the first rise in two quarters following Q2's 16.9% fall.
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