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Japan's industrial production posted the third straightly increase in the first quarter of 2021 and production is expected to continue to rise in the second quarter, supporting the Bank of Japan's view on momentum for production.

Industrial production rose 3.0% q/q in the first quarter following a 5.7% rise in the fourth quarter of 2020, due to recovering global demand for IT-related goods and capital goods for capital investment.

The BOJ has the view that industrial production is likely to continue increasing, mainly supported by a global recovery in demand for business fixed investment and steady digital-related demand, although its pace of increase is expected to decelerate for the time being due to the semiconductor shortage.

Industrial output remains a key piece of data to aid BOJ economists assess the wider economic outlook, as it reflects both external and domestic demand, with the BOJ keeping to the view that industrial production and exports have increased.

Bank officials expect production of automobiles to be weak in the second quarter due to the shortage of semiconductors, but anticipate that production for IT-related and capital goods will rise during the period.

Industrial production rose 2.2% m/m in March for the first rise in two months following -1.3% in February, due to higher production of motor vehicles and inorganic and organic chemicals as well as plastics production.

The BOJ's latest assessment is "Industrial production is likely to decelerate its pace of increase in the short run due to a peaking-out of pent-up demand for automobiles."

RISES EXPECTED IN Q2

The government left its assessment unchanged from the previous month, noting "industrial production is recovering" and it sees production rising 8.4% (revised from +9.3%) in April before falling 4.3% in May.

Adjusting the upward bias in output plans, forecast production would rise 4.6% m/m in April. Based on this assumption and that June is flat, Q2 production would rise 1.6% q/q for the fourth straight rise following Q1's +3.0%.