Japan’s Industrial Production declines milder than expected in March; uptrend likely to continue

By Harumi Taguchi, Principal Economist at IHS Markit


Key Points:

Ÿ   Japan’s index of industrial production (IIP) fell 2.1% month on month (m/m) in March, following a 3.2% rise in the previous month.

Ÿ   Although producers’ shipments showed softer decline than production, contracting 1.1% m/m, inventories rose for the fourth consecutive month, by 1.6% m/m, leading to the first quarter-to-quarter (q/q) increase since the first quarter (Q1) of 2016.

Ÿ   Weaker-than-expected production largely reflected shortfalls in the production of general purpose, production and business-oriented machinery and transportation equipment. Decline in the production of electric parts and devices for the first time in six months also contributed to the weaker production.

Ÿ   The weakness in producers’ shipments was largely attributed to declines in the shipments of general purpose, production and business-oriented machinery and electric parts and devices, offsetting increases in the shipments of transportation equipment, petroleum and coal production, and some other industry sectors.

IHS Markit Views:

Although Q1 2017 production and producers’ shipments were unexpectedly weak, with a 0.1% q/q rise and 0.2% q/q drop, respectively, the uptrend in Japan’s IIP is likely to continue over the near term, thanks to an ongoing recovery in external demand, upside from the release of new model cars and inbound demand for consumer goods. Industry outlooks tend be higher than actual results, but industry figure looks unusually solid, anticipating an 8.9% rise in April before a 3.7% decline in May.

Progress of destocking in a wider range of industries is a positive factor that could support production, but the growth of industrial production depends on producers’ shipments and the global economy.