One of Japan's Destination - Photo by Government of Japan

JAKARTA (TheInsiderStories) – Japan’s Index of Industrial Production (IIP) rose modestly by 0.7 percent month on month (MoM) in August following four consecutive months of decline but persistent uncertainties over global trade tensions and relatively high inventory levels are likely to suppress production over the near term.

While manufacturers’ shipments rebounded solidly or up 2.0 percent (MoM) from a drop in the previous month, inventory continued to decline moderately down 0.4 percent (MoM), and the inventory ratio turned declined down 2.2 percent for the first time since April 2018.

The moderate increase contrasted with sharp declines for production in electronic parts and devices and chemicals (excluding drugs), largely offsetting solid rebounds for production in transport equipment and general-purpose, production and business-oriented machinery.

Major contributors to manufacturers’ shipments were solid increases for shipment of transport equipment and general-purpose, production and business-oriented machinery, and softer declines for electronic parts and devices and other industry groupings.

According to Harumi Taguchi, Principal Economist of IHS Markit, the modest increase in production was in line with our expectations, while the solid rebound of manufacturers’ shipments was due largely to improved exports of autos and semiconductor machinery in August.

This is in addition to recoveries from the disruptions caused by floods and landslides throughout western Japan in early July. That said, Japan’s IIP is likely remain weak over the near term, although industry anticipates continued solid increases for production in September up 2.7 percent (MoM) and October up 1.7% in annual basis (YoY).

Solid fixed investment plans and efforts to recover and catch up with production plans after disruptions caused by natural disasters are likely to underpin production. However, the repercussions of trade tensions between the US and China remain a concern, and relatively high inventory levels with continued rapid increase for information technology-related goods would continue to weigh on production.

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