By Harumi Taguchi, Principal Economist, IHS Global Insight
Japan’s index of industrial production (IIP) rose 1.5％ month on month (m/m) in August, following a 0.4% drop in the previous month. Producers’ shipments fell 1.3%, following two consecutive months of increase. This led to a marginal increase in inventories, but the inventory ratio fell 3.5% to 113.2, the lowest level since October 2015.
The improvement in production largely reflected firm increases in electric parts and devices as well as information and communication electric equipment, thanks to increased orders related to new iPhone and computer models. The increases in producers’ shipments, however, were offset by declines in transportation machinery, general purpose, production and business oriented machinery, iron and steel, and other industry groupings.
IHS Global Insight Views:
Given that the August result was in line with its expectation, IHS Markit maintains its view that progress in destocking and improvement in production will support sustained economic growth in the third quarter. That said, some industry groupings are still suffering from destocking despite continued contraction in production.
Although external demand has buoyed production and industries anticipated continued rise in production for September (2.2%) and for October (1.2%), only modest growth is expected for the global economy. Given that the sluggishness in domestic demand is likely to persist, continued destocking or delays in investment plans due to weaker corporate profits could weigh on the recovery in production over the near term.