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MNI POLICY: Japan Q4 Factory Output Posts 2nd Straight Rise

--Japan Output Forecast Supports BOJ Recovery View

MNI (Sydney)
TOKYO (MNI)

Japan's industrial production in the fourth quarter rose 6.2% q/q for the second straight rise following a 8.7% gain in the third quarter, supporting the Bank of Japan's recovery view, MNI understands.

Forecast for industrial production in January and February underpins the bank's solid view but bank officials are paying attention to the risk that the state of emergency could impede economic activities.

December industrial production fell 1.6% m/m for the second straight drop following -0.5% in November.

December's drop was mainly led by lower production for motor vehicles and general-purpose and business oriented machinery as well as electrical machinery.

However, production for electronic parts and devices increased.

The BOJ's latest assessment is that "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."

"However, it is expected to continue increasing, mainly supported by a global recovery in demand for business fixed investment and steady digital-related demand," the bank said.

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

CAR OUTPUT DROPS

Motor vehicle production fell 3.0% m/m in December for the second straight drop following -4.5% in November as pent-up demand peaked.

Transport equipment accounts for about 20% of Japan's total output with the auto industry alone accounting for about 3% of Japan's GDP.

Q1 SEEN RISING FURTHER

The government left its assessment unchanged from the previous month, noting "industrial production is recovering" and sees production rising 8.9% (revised up from +7.1%) in January before falling 0.3% in February.

However, adjusting the upward bias in output plans, the forecast production would rise 4.4% m/m in January. Based on this assumption and that March is flat, Q1 production would rise 2.9% q/q for the third straight rise following Q4's 6.2%.

MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com
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MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com
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