JAKARTA (TheInsiderStories) – Japan’ index of industrial production (IIP) rose 1.4 percent month on month (m/m) in February, following three consecutive months of decline. Sharp rebounds in shipments of autos and other transportation equipment drove a faster increase in manufacturers’ shipments (up 1.8 percent m/m) than the IIP.
Although weak shipments of electric machinery and other industry groupings led overall inventories to rise (up 0.5 percent m/m), the inventory ratio was down 0.2 percent m/m. The improvement in the IIP was thanks largely to solid increases in production of autos, production machinery, electrical machinery, and general purpose and business-oriented machinery.
While, production turned positive in a wide range of industry groupings. Although the improvement partially reflected a large swing of exports in January and February, the rebound in production was moderate — compared to the sharp decline in January — due to weak domestic and external demand and destocking.
According to Harumi Taguchi, principal economist at IHS Markit, Japan’ industry anticipates sustained improvement in production in the coming months (a 1.3 percent m/m rise in March and a 1.1 percent m/m rise in April).
However, industrial production for the first quarter of 2019 could decline nearly 3 percent from the previous quarter even if March figures match the industry outlook. Despite progress with destocking in some industries, relatively high inventory ratios suggest destocking is likely to continue over the near term.
IHS Markit expects Japan’ industrial production to remain weak over the near term, given that continued sluggish machinery orders from overseas have suppressed domestic orders while the flash Nikkei Manufacturers’ Purchasing Manager Index by IHS Markit signaled the sharpest cutback in output volumes in March since May 2016.
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