Japanese Industrial production increased 1.0% in April

Industrial production in Japan made a tepid improvement in April, rising 1.0% month-on-month after a 0.8% mm/m decline in March. This marked the first positive growth since January this year. The result was largely in line with forecasts. However, production continues to lack momentum, probably under the combined weight of destocking in some industries, slow exports and weak consumer spending.

A detailed analysis of the report showed that by industry, higher output at electronic parts and device makers was good news, but production decreased at makers of information and communication electronics equipment, iron and steel, and transport equipment.

An official survey indicates that production will likely increase in May. According to the index projections, Japanese manufacturers will step up production by 0.5% m/m this month and then reduce it by 0.5% m/m in June, leaving the direction of output somewhat unclear for a while. Based on official projections, output is likely to decrease 0.4% quarter-on-quarter for the second quarter (+1.5% Q/Q in Q1). Given a strong tendency for actual production to undershoot official projections, it looks increasingly likely that output will turn negative in the second quarter, with a delayed recovery in summer or later. Key points to watch in the coming months will be whether inventory adjustment makes progress, exports turn around, and consumer spending recovers clearly.

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