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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