By Harumi Taguchi, Principal Economist, IHS Global Insight
Key Points:
Ÿ Japan’s index of industrial production (IIP) rose for a third consecutive month in October, by 0.1% month on month (m/m), even though the index of producer’s shipments increasedby 2.2% m/m following a 1.8% rise in the previous month. The solid increase of producer’s shipments, which outpaced production, contributed to a 2.1% m/m decline in inventory. This led the inventory index to reach its lowest level since April 2014.
Ÿ The uptrend in production reflected continued increases in electronic devices and parts and transportation equipment, and rebounds in fabricated metals. But these increases in October were largely offset by lower production of general-purpose, production and business oriented machinery and chemicals (excluding drugs), and a sustained decline inelectric machinery.
Ÿ That said, solid increases in producer’s shipments, particularly for electronic parts and devices, transportation equipment, fabricated metals, and general-purpose, production and business oriented machinery, as well as information and communication electronics equipment, suggest that export demand remains solid and construction-related demand has picked up.
IHS Global Insight Views:
Industry expects production to surge by 4.5% m/m in November, thanks largely to increases in the production of general-purpose, production and business oriented machinery, electric machinery, and information and communication electronics equipment, before a 0.6% drop in December due largely to weaker figures for some industry groupings. The outlook suggeststhat industrial production increase for a third consecutive quarter in the fourth quarter.
That said, IHS Markit expects Japan’s industrial production to remain modest over the nearterm because the sustainability of external demand remain uncertain, even though destocking,an uptick in external demand and a correction in the strong yen will contribute to the recovery of industrial production. The downside revision in production outlooks for electric parts and devices and information and communication electronics equipment, on top of the lower-than-anticipated production in October, means external demand for these industry groupings couldlift overall external demand to an excessive extent.