Photographer: Tomohiro Ohsumi/Bloomberg

Japan’s Industrial Output Falls Flat, Keeping Pressure on BOJ

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Japan’s industrial production was unchanged in July, falling short of even the most pessimistic  estimates from economists surveyed by Bloomberg.

Key Points

  • Output didn’t change in July from June, following a 2.3 percent gain last month, data from the economy ministry show.
  • The median forecast was for an increase of 0.8 percent, with estimates ranging from 0.1 percent to 2.0 percent.
  • Production dropped 3.8 percent from a year earlier, versus projections for a decline of 3.0 percent.
  • Output is forecast to rise 4.1 percent in August, then fall 0.7 percent in September.

Big Picture

The output figures come amid growing pressure for the Bank of Japan to expand monetary stimulus at its meeting on Sept. 20-21, and as Prime Minister Shinzo Abe crafts a 28 trillion yen ($272 billion) fiscal stimulus package. Retail sales numbers released on Tuesday showed consumers are still reluctant to increase spending, despite a slight improvement over previous months. Industrial production has failed to make consistent gains over the past year, especially with the yen’s strength since the start of 2016.

Economist Takeaways

  • "It’s worse than the market consensus but production isn’t falling, inventory is dropping and companies are expecting a solid production increase," said Taro Saito, director of economic research at NLI Research Institute in Tokyo. "I don’t expect production will clearly gain momentum from here as the yen’s gains make exports unlikely to rise."
  • "Looking over the July-September period, weak exports and a slowdown in production doesn’t bode well for Japan’s economy," said Hiroaki Muto, chief economist at Tokai Tokyo Research Center. "Economic growth may not be that strong in the third quarter.”

The Details

  • Shipments from factories rose 0.9 percent in July from June, when they advanced 1.7 percent.
  • Inventories decreased by 2.4 percent, the biggest drop since March 2011.
  • Shipments of capital goods excluding transport equipment, an indicator of business investment, rose 0.8 percent in July from June.