Japan Industrial Production Falls Sharply In October – Review

London, 29 October 2019 (LS NEWS) – A preliminary read on Japanese industrial firms’ activity in October showed industrial production fell by 4.2pct m/m in October and 7.4pct y/y. The m/m decline represented the biggest decline since January 2018.


The figures reversed the gains made in September where industrial production rose 1.7pct m/m and 1.3pct y/y.


Whilst the consensus forecast was for a decline in industrial production, both readings showed sharper declines versus the estimates for declines of 2pct and 5.2pct respectively.


USD/JPY showed little reaction to the data, holding around the mid-109 handle.


In a sign factory production is likely to stay weak, the Ministry of Economy, Trade and Industry (METI) released surveys from Japanese manufacturers who downgraded their industrial output estimates to a 1.5pct decline in November from the 1.2pct decline estimated in September. Manufacturers did however, see output rising 1.1pct in December.


Diminishing temporary effects which propped up domestic demand in the September readings contributed to the weakness in the October prints. The Japanese government hiked the sales tax from 8pct to 10pct on 01 October 2019. Consumers anticipated the widely televised hike and brought forward consumption spending before October, especially for large-price items. Evidence of this was seen as a decline in passenger car output was a main driver in the October report.


Added to that, typhoons which hit the country in both the central and eastern regions in Japan disrupted firm-level production activity.


The weakness in foreign demand also weighed as Japanese exports continue to weaken amid a trade spat with South Korea. In an effort to resolve the spat, the South Korean Trade Ministry announced today that they will hold senior level talks in December with Japanese officials with the hope of resolving the core issues related to the export curbs.


Japanese Finance Minister, Taro Aso, spoke following the data release stressing that the government desired to secure the recovery trend in Japan. He explained that the government would mull further funding for cashless support if required. His comments were mirrored by the Economy Minister, Yasutoshi Nishimura, who highlighted the government will make continued efforts to support consumption.


Amidst these signs of weakness in the Japanese economy, expansionary fiscal stimulus chatter continues to ramp up amid the ultra-loose monetary policy from the Bank of Japan, which makes the cost of debt-financing low. On Thursday this week, Japan’s government coalition requested an additional $92 billion budget to boost spending on the economy.


-- LS News