MNI POLICY: Japan Sep Output Rebounds; BOJ Caution On Outlook

By Hiroshi Inoue

     TOKYO (MNI) - Japan's industrial production bounced back in September, but

Bank of Japan officials are still concerned that weak exports will weigh on the

outlook, MNI understands.

     September industrial production rose 1.4% on month (vs. the MNI median

forecast of +0.5%), reversing from August's -1.2%, thanks to higher production

or general-purpose and business-oriented machinery, production machinery,

electrical machinery and information and communication electronics equipment.

     Against that, production for motor vehicles, electronic parts and devices

and transport equipment fell, reflecting weak demand for automobiles overseas.

Automobile production fell 1.7% in September after falling -1.1% in August and

Bank officials expect weak output to spillover inti parts manufacturers.

     Overall production of electronic parts and devices fell 1.8% on month in

September, indicating adjustments of IT-related goods -- a sector closely

watched by BOJ economists -- has bottomed but not yet recovered.

     --SOLID CAPITAL GOODS

     Shipments of capital goods excluding transport equipment, another key focus

for the BOJ, rose 8.6% in September for the third straight monthly rise, boosted

by capital investment at home.

     Over Q3, Japan's industrial production fell 0.6% Q/Q for the first drop in

two quarters following a 0.6% gain in Q2.

     The BOJ will likely keep its assessment that industrial production, a key

piece of data for it, has been "more or less flat." The government see

production rising 0.6% (revised from -0.5%) in October before falling 1.2% in

November. Adjusting the upward bias in output plans, government forecast

production would fall 1.6% on month in October.

     --Q4 OUTPUT SEEN FALLING

     Based on this assumption and if output is flat in December, production for

the October-December quarter would fall 1.0% q/q, the second straight drop.

     The BOJ remains cautious, awaiting December Tankan data, with the

realization ratio - the real amount of the previous month in the current time's

survey divided by the estimated amount of the current month in the previous

time's survey - remained weak in September, down 2.3% following -3.3% in August

and -1.3% in July.

--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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