Another Drop in Japan's Industrial Output Would Deepen Woes

  • Weaker data would amplify concern that Japan is in recession
  • Production report comes one day before BOJ mulls stimulus

Japan’s industrial production probably declined in September for a third consecutive month, fueling concern that the economy contracted last quarter and entered the second recession since Prime Minister Shinzo Abe took office.

The output data, which will be released at 8:50 a.m. Thursday in Tokyo, may intensify the debate about whether the central bank should boost already unprecedented monetary stimulus. The BOJ holds its policy meeting a day later on Friday, at which it will decide on further easing.

Production for September is expected to show a 0.6 percent decline from August, when it dropped a revised 1.2 percent, according to the median forecast of 32 economists surveyed by Bloomberg. A gain of 5 percent in September would be needed for third-quarter output to reach zero percent, according to the trade ministry.

“There’s a high chance that Japan’s economy would contract in the third quarter,” said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance Co. in Tokyo. “The production data is attracting huge attention as a gauge on whether the BOJ will ease further at its meeting this week.”

While the gain in September in real exports, which are adjusted for price swings, gave some relief to BOJ officials, Kyohei Morita, chief economist for Japan at Barclays Plc., said the decline in the volume of shipments points to a drop in output.

Real exports rose 1.9 percent in September from the previous month, according to the Bank of Japan. Export volumes fell 2.2 percent in September, according to the seasonally adjusted figures calculated by the Cabinet Office using finance ministry data.

“Industrial production is more closely correlated with export volumes than real exports and those export volumes in September suggest a downside risk to production,” said Barclays’ Morita, who forecasts a 1 percent drop for the September output. “Such a result would likely heighten tensions around the economy and put policy pressure on the BOJ.”

Reports on hiring, spending and inflation are also set to be released before the BOJ’s decision. Retail sales gained 0.7 percent in September from August, the economy ministry reported Wednesday in Tokyo, missing a 1.1 percent increase estimated by economists in a Bloomberg survey.

"There will be no surprise if we see a negative number for July-September GDP," Hiroaki Muto, chief economist at Tokai Tokyo Research Center Co. in Tokyo, said after the retail sales report was released. "The BOJ is saying the economy has been flat, but it’s no longer flat."

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