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REPEAT MNI INSIGHT: BOJ: Factory Output Bolsters Econ Recovery

Repeats Story Initially Transmitted at 03:40 GMT Dec 28/22:40 EST Dec 27
By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan officials think that industrial production is
on a moderate uptrend in line with a pickup in exports and that it will continue
to show solid gains on the back of firm external and domestic demand, MNI
understands.
     Industrial output is a key piece of data for BOJ economists to assess and
predict the pace of the current modest economic recovery as it reflects both
external and domestic demand.
     --FACTORY OUTPUT UP
     Government data released Thursday showed that industrial production posted
the second straight month-on-month rise in November, up 0.6%, coming in stronger
than the 0.1% fall projected by the government and slightly higher than the 0.5%
median forecast by economists polled by MNI.
     The Ministry of Economy, Trade and Industry noted that it was the first
month-to-month rise in a row this year after several months of up-and-down
swings.
     BOJ officials were heartened to see output increases in chip-making
machines, semiconductors and vehicles, as projected by the government last
month.
     --Q4 OUTPUT SEEN UP
     Based on the METI's survey of manufacturers, industrial production is
forecast to rise 3.4% on month in December (revised down from +3.5% projected
last month) and fall 4.5% in January.
     In the October-December quarter, factory output is estimated to rise 2.0%
on quarter after a modest 0.4% gain in July-September and a 2.1% rise in
April-June.
     But adjusting the upward bias in output plans, the METI projected
production would rise at a slower pace of 1.8% on month in December. Based on
this assumption, Q4 factory output would still show a solid 1.5% gain on
quarter.
     The METI upgraded its assessment of industrial production, saying,
"production is picking up." The previous assessment was that production showed
signs of picking up.
     BOJ officials have concluded that November industrial production is
consistent with the November real export index, which supports the BOJ view that
the economy is likely to expand moderately based on balanced domestic and
overseas demand.
     The real export index calculated by the BOJ based on the trade data
released by the Ministry of Finance showed a 5.1% month-on-month rise in
November, for the second straight rise after +2.6% in October.
     The October-November average of the index grew 2.4% over the July-September
quarter, when it rose 1.9% from April-June, indicating Japanese shipments to the
world will continue growing in the whole of the current quarter.
     BOJ officials are convinced that both exports and industrial production
will continue supporting a modest economic recovery in the October-December
quarter onward.
     --INFLATION EXPECTATIONS FOCUSED
     Compared to a steady pickup in factors supporting economic growth, the
year-on-year rise in consumer prices remains slow as companies in general are
cautious about raising wages and retail prices. Labor shortages and higher
materials costs have prompted some firms to raise prices, but investment in
equipment and technology to make operations more efficient is expected to put a
lid on price hikes.
     The next key indicator is inflation expectations held by households in the
BOJ's quarterly consumer confidence survey due out on Jan. 11.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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