Photographer: Kiyoshi Ota/Bloomberg

Japan’s July Industrial Output Slows; Outlook Still Upbeat

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Japan’s industrial production slowed in July from June, but continued strong exports and a cheap yen mean the slowdown may be temporary.


  • Industrial production fell 0.8 percent (forecast -0.3%) in July from June, when it increased by 2.2 percent.
  • Year-on-year production climbed 4.7 percent (forecast +5.2%).
  • Production is forecast to rise 6.0 percent this month and drop 3.1 percent in September.

Key Takeaways

Buoyed by a competitive yen and a recovery in global demand, Japan is on the way to a seventh-straight quarter of economic growth. Exports have increased strongly all year, though risks from North Korea have caused swings in the currency and regional markets. A drop in household spending, but a pickup in retail sales offer a mixed picture this week of Japanese domestic consumption.

Economist Views

  • "There’s no need to change the view that production is on the recovery path because of today’s slightly weaker-than-expected data," said Shinichiro Kobayashi, an economist at Mitsubishi UFJ Research and Consulting Co. He said the figures tells us that factory output isn’t going to speed up so much as to lead the economy. "I expect a gradual recovery, but not in an impressive way," said Kobayashi.
  • "Industrial production is being supported by expanding domestic demand, but exports are making an especially big contribution," Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc., wrote in a note.
  • Capital Economics’ Marcel Thieliant said the "fall in industrial production in July points to a slowdown in Q3 even if activity recovers in August and September." He said firms typically overstate production forecasts, so figures for the next two months may be lower than official estimates suggest.

Bloomberg Intelligence

The data suggest that Japan’s economic recovery is losing some steam, according to Bloomberg Intelligence economist Yuki Masujima in his analysis. He predicts output will decline in the third quarter, breaking five quarters of consecutive gains. A drop in the shipments of capital goods may also indicate downside risk for business investment.

He notes that the launch of the new iPhone in September and potential gains in the yen due to tensions with North Korea are two factors to watch.

— With assistance by Toru Fujioka, and Isaac Aquino

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