REPEAT:MNI ANALYSIS: BOJ Sees Factory Output on Modest Uptrend

By Hiroshi Inoue

     TOKYO (MNI) - Japanese industrial production only partially rebounded in

February, prompting the government to forecast a decline in the first quarter,

but Bank of Japan officials maintain the view that factory output will stay on a

modest pickup trend, MNI understands.

     The index of industrial production rose 4.1% on month in February to a

seasonally adjusted 103.4 (100 in the 2010 base year), coming in weaker than the

MNI median economist forecast for +5.1%, government data released Friday showed.

The increase didn't make up for the 6.8% slump in January.

     Yet the partial rebound in February came as a relief to BOJ officials

because the January drop was too sharp, even though there was a statistical

distortion in seasonal adjustments. 

     --AUTO OUTPUT REBOUNDS

     Production of transport equipment rose 10.3% on month in February after

falling 14.3% in January, data from the Ministry of Economy, Industry and Trade

showed.

     It was consistent with a faster pace of Japanese automobile exports in

February, up 15.7% on year, compared with +6.7% in January.

     Shipments of automobiles to the U.S., which account for about 40% of total

Japanese auto exports, rebounded 12.3% on year in February after a 3.9% fall in

January, according to Ministry of Finance trade data. Those to the European

Union, with a 12 % share of total Japanese auto exports, rose 39.3% after a

19.1% rise in January.

     BOJ officials are also encouraged by a rebound in durable goods production,

up 13.0% on month in February after falling 13.5% in January.

     But on the downside, METI data also showed shipments of capital goods

excluding transport equipment, a key indicator of the strength of business

investment overseas, fell 1.3% on month in February following -5.3% in January.

     --HIGH APR OUTPUT

     Based on its survey of manufacturers, METI projected that industrial

production would rise 0.9% on month in March (revised up from-2.7% forecast last

month).

     Adjusting the upward bias in output plans, METI forecast production would

rise at a slower pace of 0.5% on month in March. Based on this assumption,

industrial production would fall 2.0% on quarter in January-March, the first

drop in eight quarters.

     Looking further ahead, METI also projected a firm start to fiscal 2018,

with April production seen up 5.2% from March and up 8.3% from April 2017.

     "This is a very bullish production plan," METI said in the output release.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com