JAKARTA (TheInsiderStories) – Japan’s Index of Industrial Production (IIP) fell for the second straight month in December 2018, sliding 0.1 percent from November. However, the index increased by 1.9 percent in the fourth quarter of 2018 compared to the previous quarter.
While, manufacturers’ shipments rose 0.3 percent month on month (m/m) while inventory continued to increase (up 1.0 percent m/m), which lifted the inventory ratio by 2.2 percent m/m.
The weak IIP in December is largely due to declines in the production of electric parts and devices, production machinery and chemical products. This offset the continued increase in the production of autos as well as rebounds in the production of general-purpose and office machinery and other industry sectors.
Although, weak external orders also led to declines in manufacturers’ shipments of production machinery, electric parts and devices, and steel, iron and non-ferrous metals, the modest increase in manufacturers’ shipments largely reflected increases in the production of transport equipment and general purpose and business machinery.
According to Harumi Taguchi, principal economist at IHS Markit, the industry expects a solid rebound in production, by 2.6 percent m/m in February, following a marginal 0.1 percent m/m drop in January, with risks skewed to the downside.
Japan’ Ministry of Economy, Trade and Industry estimated that the January production could decline 2.6 percent m/m, which would not be a surprise given weak new orders and seasonal volatility due to Lunar New Year holidays in Japan’s trading partners.
While both domestic and external machinery tool orders in January contracted compared to a year ago, the flash Nikkei Japan Manufacturing PMI by IHS Markit also suggested declines in new orders and output.
Given that inventory rose in a wide range of industry sectors, destocking could weigh on industrial production over the near term. Although the probability of a recession in the global economy in 2019 is still low, prolonged global uncertainties and yen’s recent appreciation could keep manufacturers cautious in their fixed investment plans for fiscal year 2019.
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