MNI POLICY: Japan May Output Dn 8.4%; June, July Seen Higher

By Hiroshi Inoue

     TOKYO (MNI) - Japan's industrial production fell for a fourth straight

month in May, declining 8.4% m/m in May after a 9.8% fall in April and a 3.7%

drop in March. However, policymakers expect output to pick up in both June and

July as economies reopen at home and abroad.

     Although a recovery is expected in coming months, it will remain dampened

somewhat by the continued sluggish global demand for autos and capital goods.

     Production for all items fell in May although the decrease was mainly

driven by lower output of autos, production machinery, iron and steel and

nonferrous metals, all in line with May's weaker export data.

     Car production fell 23.2% m/m in May for a fourth straight drop but slowing

from a 36.6% fall in April. Transport equipment accounts for about 20% of the

total output and the auto industry accounts for about 3% of Japan's GDP.

Shipments of capital goods excluding transport equipment fell 9.0% m/m in May

for a first drop in two months following +1.4% in April.

     --JUNE, JULY SEEN RISING

     The government left its assessment from the previous month, saying that

production is falling rapidly. BOJ economists had factored in weaker production

for Q2, seen as the hardest hit by the pandemic and are bullish about the

prospects for the next few months as early signs suggest a modest global uptick.

     The government now sees production rising 5.7% in June before further

rising 9.2% in July, although adjusting the upward bias in output plans, the

forecast production would rise only 0.2% m/m in June.

     Based on this assumption, Q2 production would fall 17% q/q after a 0.4%

gain in Q1 and 3.6% fall in Q4 2019.

     Despite weak demand for IT-related goods in May, BOJ economists see no

reason not to expect solid demand into Q3.

     All over, the latest production data offers no reason for bank insiders to

change their view that Wednesday's Tankan survey will likely show weak capex

plans from Japan's manufacturers.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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