MNI INSIGHT: Japan Factory Output Latest Dismal Sign On Q1 GDP

Downside risks to the economy will be heightened at the March Bank of Japan policy meeting amid the latest tepid economic data and geopolitical risks driving up energy costs that could lead the central bank to issue a rare statement before the end of the fiscal year on maintaining financial market stability, MNI understands.

On Monday, weak January industrial production and a sluggish outlook for February and March firmed up expectations the economy would lose growth momentum, at least in the first quarter, MNI understands.

Output fell 1.3% from December as the automobile industry, and related supplies in steel, faced hurdles related to the measures to combat the Omicron variant, and supply-chain glitches.

Adjusting for the upward bias in output plans, METI now forecasts production would rise only 0.7% on month in February. Based on this assumption, production would rise 0.7% on quarter in January-March, the first drop in two quarters following +1.0% in Q4.

The data builds on earlier BOJ concerns that a gain in fourth quarter growth will not be repeated.
See: MNI INSIGHT: Trade Data Makes BOJ More Concerned On Q1 Economy.
See: MNI INSIGHT: BOJ Expects Stagnant Q1 GDP On Spending, Exports.

Discussion ahead of the March 17-18 policy-setting meeting is now focused on escalated geopolitical risks. Senior officials at the Bank of Japan, the Ministry of Finance and the Financial Services Agency are meeting on Monday to discuss responses to any market volatility.

The last time the BOJ issued an end of fiscal year statement on monitoring stability in financial markets was in March 2020.