Japan's Industrial Production Shows Signs Of Improvement

Morgan Stanley and Bank of America issued reports on Japan’s industrial production Friday.

Bank of America analyst Setsuko Yamashita noted the main results:

Production: +0.2 percent MoM, -1.0 percent YoY (market forecast: -0.6 percent MoM, -1.7 percent YoY, September: +2.9 percent MoM, +0.8 percent YoY)

Shipment: +0.4 percent MoM, -0.6 percent YoY
Inventories: -0.4 percent MoM, +3.9 percent YoY
Survey of Production Forecast
November forecast: +2.3 percent MoM, December forecast: +0.4 percent MoM

Yamashita felt the results indicated a continuing “moderate recovery” and concluded that “The Bank of Japan’s 31 October inflation forecast showed core inflation accelerating toward its target of 2 percent from mid-2015. The next checkpoint will likely be whether, on a narrowing output gap and stronger inflationary expectations, core inflation will accelerate to the upper-1 percent range from mid-2015. Needless to say, whether further monetary easing will be required depends very much on the data.”

Morgan Stanley analyst Takeshi Yamaguchi felt the data indicated that industrial production had “bottomed out” and noted that “The small +0.2 percent MoM rise in output shown by the October industrial production headline figure is an unexpectedly solid outcome after September’s large (+2.9 percent MoM) increase.

“Production based on the scope of coverage of METI’s Survey of Production Forecasts in Manufacturing was below the projected figure (-0.1 percent MoM), but on comparison with the whole index of industrial production, the actual MoM figure moved above the forecast survey figure for the first time in the phase of falling production since Jan 2014.”

Yamaguchi concluded, “Bright signs are also emerging beyond the headline data, including (1) a two-month-straight drop in the inventory ratio for transport equipment, which had been plagued by a sharp increase in inventory, and future production plans projecting an increase in output in this area, (2) a two-month-straight decline in the inventory ratio for final demand goods, a leading economic indicator of business cycles, and (3) an upward acceleration in capital goods shipments two month running, bringing signs of a recovery in Oct-Dec capex.”