Prime Minister Sinzo Abe - Photo by Japan Government

JAKARTA (TheInsiderStories) – Japan’s Index of industrial production rose 2.9 percent month on month (m/m) in October, following a 0.4 percent m/m drop in the previous month.

Manufacturers’ shipments surged 5.4 percent m/m after a 2.0 percent m/m drop in the previous month. The solid increase in shipments outpaced production and helped to lower inventories (down 1.4 percent m/m) and the inventory ratio (down 7.4 percent m/m).

The production increased larger than expected mainly because the disruption caused by natural disasters ended. The improvement was also supported by a release of new car models and driven by transportation machinery, such as railway rolling stock, which was one of the factors lifting machinery orders in the third quarter.

Harumi Taguchi, Principal Economist of IHS Markit said improved production and shipments, and lower inventory levels are good news for Japan’s economy and the October results signal a rebound in consumer spending and capital expenditure in the fourth quarter.

Industry anticipates continued increases in production in November and December, suggesting the weak production in the third quarter was temporary.

That said, strong increases in production and manufacturers’ shipments are unlikely to be sustainable. While trade tensions between the US and China and other uncertainties could continue to weigh on external demand, news that Apple has cut production orders for all three iPhone models could suppress LCD production, which was one of drivers behind the growth of production and manufacturers’ shipments in October.

Given that continued weakness in external orders has made manufactures more cautious about new orders, industrial production could be moderate over the near term, until front-loaded demand before the next consumption tax increase, scheduled for October 2019, fuels production.

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