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Repeats Story Initially Transmitted at 05:34 GMT Sep 28/01:34 EST Sep 28
By Hiroshi Inoue
     TOKYO (MNI) - Japan's August industrial production posted the first
month-on-month rise in four months, supporting the Bank of Japan view that
production is on an increasing trend, MNI understands.
     However, BOJ officials remain vigilant against the production outlook based
on the risk that the worsening of corporate sentiment to be caused by the
U.S.-China trade dispute would delay the implementation of solid capital
investment plans.
     Industrial production rose 0.7% on month in August, coming in weaker than
the MNI median economist forecast of +1.5%, preliminary data released Friday by
the Ministry of Economy, Trade and Industry (METI) showed.
     The first increase in four months was led by higher output of passenger
cars and production machinery, the latter of which is closely linked to business
investment, but the overall factory output rise was partly offset by a decline
in the output of electronic parts and devices.
     The METI maintain the view, saying, "While production is picking up
moderately, there are signs of weakness in some areas." The government last
month downgraded its assessment for the first time in six months.
     METI projected that factory output would rise 2.7% on month in September
and 1.7% in October, but adjusting the upward bias in output plans, METI
forecast production would rise at a slower pace of 0.2% in September.
     If factory output rises 0.2% in September, as forecast, it would slump 1.0%
on quarter in July-September, the first q/q drop in two quarters after +1.3% in
Q2 and -1.3% in Q1.
     BOJ economists are focused on industrial production as a key indicator to
assess the economic outlook, and they are focused on production of transport
equipment and capital goods excluding transport equipment, in which Japan has a
comparative advantage.
     BOJ officials are encouraged by the rebound in the production of transport
equipment and capital goods excluding transport equipment in August.
     Production of transport equipment rose 5.2% on month in August, rebounding
from -4.2% in July, while production of capital goods excluding transport
equipment rose 5.9% on month in August, also rebounding from -1.2% in July.
     BOJ officials believe that demand for capital investment overseas remains
solid, supporting Japan's industrial production.
     On the downside, production for electronic parts and devices fell 8.8% on
month in August following a 1.8% rise in July.
     But BOJ economists didn't take the drop so seriously as production of
electronic parts tends to fluctuate sharply from month to month due to inventory
     Production of electronic parts and devices is expected to fall 0.3% in
September but rise 5.2% in October.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: