REPEAT: MNI INTERVIEW: Japan Output Solid Despite iPhone Cut

--METI Official: Strong Domestic Demand Offsets Slower US Car Sales

By Max Sato

     TOKYO (MNI) - Robust Japanese industrial output will be unfazed by a

reported decision by Apple to slash its production of the iPhone X because

overall demand for global electronic parts, cars and machines remains strong, a

senior government official told MNI.

     "Smartphones have supported demand for electronic parts and devices but

Japanese makers have already reduced the production of small- and medium-sized

liquid crystal displays because Apple has shifted to an organic light-emitting

diode (OLED) panel for the iPhone X," said Yoshio Kinoshita, deputy director of

the Economic Analysis Office at the Ministry of Economy, Trade and Industry.

     "Instead, Japanese firms are meeting strong demand from Chinese TV makers

for large liquid crystal displays," he said.

     In the past few years, South Korean and Taiwanese makers have been dominant

in the OLED market because Japanese firms do not have mass production capacity,

he added.

     --STRONG DEMAND FOR CARS, MACHINES

     "The impact of the iPhone may not be zero but Japanese industrial

production has been also supported by domestic and overseas demand for

automobiles and general machinery," Kinoshita said.

     The Nikkei reported on Monday that Apple notified suppliers that it had

decided to cut the first-quarter production target to around 20 million units,

in light of slower-than-expected sales through the year-end holiday shopping

season in key markets such as Europe, the U.S. and China.

     METI data released Wednesday showed that the index of industrial production

rose 2.7% on month in December to a seasonally adjusted 106.3 (100 in the 2010

base year), the highest in more than nine years, led by strong demand for

passenger cars, industrial machinery and electronic parts.

     Based on the government's survey of manufacturers, industrial production is

forecast to fall 4.3% on month in January before rebounding 5.7% in February.

     METI maintained its assessment that industrial production is "picking up"

because output posted the third straight month-on-month rise and shipments also

rose for the second month in a row.

     There are indications that demand for passenger cars in the key U.S. market

is slowing, but Kinoshita said it has had little downward effect on Japanese

factory output.

     "Production of automobiles was up in December, backed by domestic demand,

even though that for exports was down," he said.

     "Demand for machinery used for capital investment has been also very

strong, particularly from overseas. We haven't heard any bad news about it

recently."

     The output of transportation equipment is forecast by METI to fall 17.7% on

month in January before rising 9.8% in February while that of electronic parts

and devices is projected to rise 4.8% in January and gain a sharp 13.5% in

February.

     The output of general, production and business machines is forecast to drop

3.6% in January but is seen rising 8.3% in February, according to METI.

     --ROOM FOR FURTHER RISE

     Going forward, the index of industrial production still has room for

further gains, even though it has climbed to the highest level since 107.4

recorded in October 2008, Kinoshita said. In March 2008, just before the start

of the Global Financial Crisis, the index was as high as 117.3.

     "It has not recovered to the level seen before the collapse of Lehman

Brothers (in September 2008), so I think it is likely to rise further," he said.

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