Japan September Industrial Output Dips After Recent Gains on Easing Supply Constraints

–METI Survey: Output Likely to Slump in October, Rise Slightly in November

–METI Keeps View: Output Showing Signs of Moderate Increase

–METI Repeats: To Watch Effects of a Rise in Covid Cases, Parts Shortages, Inflation

By Max Sato

(MaceNews) – Japan’s industrial production posted the first drop in four months in September, taking a breather after recent gains on easing global supply bottlenecks, but marked a solid rebound in the July-September quarter, boding well for third-quarter GDP growth, preliminary data released Monday by the Ministry of Economy, Trade and Industry showed.

The METI’s survey of producers indicate that output is likely to slump in October and inch up in November amid slowing global growth. 

The ministry maintained its view after upgrading it last month, saying industrial output is “showing signs of a moderate increase.” 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.

The key points from the data:

* Industrial production fell a seasonally adjusted 1.6% on the month in September, coming in weaker than the median economist forecast of a 1.0% fall (forecasts ranged from a 1.9% drop to a 0.5% rise). It followed an upwardly revised 3.4% jump in August, a 0.8% rise in July, a 9.2% surge in June and a 7.5% plunge in May.

* Of the 15 industries, 11 posted declines and four recorded gains from the previous month. The year-on-year drop in overall production was led by the auto industry, chemical firms and manufacturers of production equipment. 

* Production rebounded 5.9% on quarter in the July-September quarter after falling 2.7% in April-June, rising 0.8% in January-March and edging up 0.2% in October-December.

* Shipments of capital goods excluding transport equipment – a key indicator of domestic demand in GDP data – soared 13.1% in the third quarter, marking the second straight rise after rising 1.3% in the second quarter, being flat in the first quarter and falling 1.5% in the final quarter of 2021.

* Based on its survey of manufacturers, METI projected that industrial production would fall a further 0.4% on the month in October (revised down sharply from a 3.2% rise forecast last month), led by makers of production machines and chemical firms, and rise 0.8% in November, led by producers of transportation equipment and chemical goods. Adjusting the upward bias in output plans, METI forecast production would slump 3.7% in October.

* The September business sentiment diffusion index based on the October survey improved slightly to -7.5 (firms with bullish views accounted for 23.2% while those with bearish views came to 30.7%) from -7.7 (bulls 22.7% minus bears 30.4%) the previous month. It was the highest since -5.2 in November 2021 (December survey). Figures below -5 indicates the economy may be in a downturn phase. The sentiment index was in positive territory from June 2020 until May 2021. 

* The index of industrial production (100 in the 2015 base year) stood at 98.6 in September, well above the recent bottom of 77.2 hit in May 2020, but it slipped below 99.1 seen in January 2020, when the pandemic hadn’t had a widespread impact yet, after briefly popping up 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 last year.

* From a year earlier, the production index rose 9.8% in September, marking the second straight rise after rebounding 5.8% (revised up from an initial 5.1% rise) in August and falling 2.0% in July. It was below the median economist forecast of a 10.4% rise (forecasts ranged 9.4% to 12.1% increases). 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 the first drop in four months, down 2.4% on the month in September, after rising 2.8% (revised up sharply from a 1.9% gain) in August. As seen in output, shipments of automobiles among other products slipped after a recent pickup led by easing supply constraints. Shipments of gasoline and diesel oil dropped due to maintenance work and technical issues at facilities.

* Inventories rose 3.0% for the fourth consecutive increase after rising 0.7% (revised down from a 1.4% rise) in August. Firms built up inventories of heat pumps ahead of the winter and boosted those of lithium-ion batteries for future shipments. Inventories of active-matrix liquid-crystal display panels rose in the face of falling shipments of computer tablets and flat-screen panels for TVs.