–METI Survey: Output Likely to Slide Further in December, January
–METI Downgrades View for 2nd Straight Month: Output ‘Weaker’ Vs. ‘Picking Up Gradually but Shows Weakness in Some Areas’
–METI Repeats: To Watch Effects of a Rise in Covid Cases, Parts Shortages, Inflation
By Max Sato
(MaceNews) – Japan’s industrial production posted a third straight monthly drop in November, down by a firmer-than-expected 0.1%, as global demand for electronic parts and devices, notably from China, continues to shrink and output of general machines dipped in reaction to higher demand the previous month, preliminary data released Wednesday by the Ministry of Economy, Trade and Industry showed.
The METI’s survey of producers indicate that output is likely to decline further in December and January after supply constraints have eased in recent months. The ministry downgraded its view for the second straight month, saying industrial output “has weakened.” Last month, it said, production was “picking up gradually but also showing weakness in some areas.” The METI repeated that it will keep a close watch on the impact of a rise in Covid cases on domestic and global growth as well as parts and materials supply shortages and rising prices.
Bank of Japan Governor Haruhiko Kuroda said last week that the board’s decision at its Dec. 19-20 meeting to expand the trading range of the 10-year Japanese government bond yield was an adjustment needed to recover some of the lost market functioning and that it should not be considered credit tightening. Kuroda has repeatedly said the bank would not consider raising interest rates while inflation is not accompanied by solid wage growth and supply continues to exceed demand in the Japanese economy. The BOJ board has projected inflation is unlikely to be anchored around its 2% target for the next few years.
The key points from the data:
- Industrial production dipped a seasonally adjusted 0.1% on the month in November, coming in slightly firmer than the median economist forecast of a 0.3% fall (forecasts ranged from a 1.0% drop to a 1.5% rise). It followed a downwardly revised 3.2% slump in October, a 1.7% drop in September and gains of 3.4% in August and 0.8% in July. The 9.2% surge in June was due to the reopening of Shanghai after two months of a Covid lockdown of the port city, which supported the regional supply chain.
- Of the 15 industries, eight posted decreases and seven recorded increases from the previous month. Leading the decline were general machinery (conveyors and cranes) in reaction to large orders placed the previous month as well as equipment to produce semiconductors amid slower sales and machines to make flat-panel displays in the face of a continued drop in demand from overseas.
- Production has been weak so far in the October-December quarter after rebounding 5.9% on quarter in July-September and falling 2.7% in April-June. Ministry of Finance data showed Japanese export values posted a slower pace of growth on lower global demand in November, with a notable slowdown in China, after hitting a fresh record high in October on easing supply constraints. The Cabinet Office’s export volume index slumped a seasonally adjusted 2.0% on the month in November after rising in the previous two months.
- Based on its survey of manufacturers, METI projected that industrial production would rise 2.8% on the month in December (revised up from a 2.4% rise forecast last month) and slip 0.6% in January. Adjusting the upward bias in output plans, however, METI forecast production would slump 1.3% in December. Global demand is slowing in light of aggressive tightening by major central banks and easing but still elevated inflation. Japan has entered the eighth wave of the pandemic whose peak is projected to come around mid-January, which could stall factory operations if many workers get infected around the same time.
- The METI October business sentiment index based on its December survey slipped back to a four-month low of -10.3 percentage points (firms with bullish views accounted for 22.7% while those with bearish views came to 33.0%) after improving further to -5.4 points (bulls 25.6% vs. bears 30.9%) the previous month, which was the highest since -5.2 in November 2021 (December survey). The
sentiment index was in positive territory from June 2020 until May 2021. The moving average trend index was at -10.1 in the latest survey. Figures below -5 in the trend index indicates the economy may be in a downturn phase. - The index of industrial production (100 in the 2015 base year) fell to a seven-month low of 95.2 in November. It is still above the recent bottom of 77.2 hit in May 2020 but below 99.1 seen in January 2020, when the pandemic hadn’t had a widespread impact yet. The index briefly jumped to 100.2 in August this year.
- Production fell during the first wave of the pandemic in 2020. After a pickup later that year, more waves of infections caused logistical bottlenecks amid reopening demand and prompted parts supply delays from Southeast Asia, where lockdowns hit factory operations in August 2021. Later, easing supply bottlenecks pushed up production from October to December 2021. Output rose in five
months so far this year. - From a year earlier, the production index fell 1.3% in November, marking the first drop in four months after rising 3.0% (revised down from 3.7%) in October and surging 9.6% in September. It was slightly firmer than the median economist forecast of a 1.6% fall (forecasts ranged a 2.1% drop to a 0.3% gain). Production showed double-digit percentage gains on year from April to July 2021 in reaction
to the pandemic-caused slump the previous year. - Shipments posted their third straight drop but the pace of month-on-month decline decelerated to 0.5% in November from 1.7% in October and 2.5% in September. As seen in output, shipments of general machines fell after large orders for conveyors were placed in the previous month and those of copier machines dipped on falling sales. Shipments of equipment to produce
semiconductors dropped on weaker global and domestic demand while those of tractors were dragged down by production facility problems. - Inventories rose 0.3% in November after falling 0.5% in October and rising 2.9% in September. Leading the increase are refined petroleum products. Refineries built up inventories of gasoline for exports and topped up kerosene.
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