Japan’s industrial production in February is expected to have dropped. February’s decline will counter January’s rise of 3.7% m/m. Hence, this will be consistent will the overall production assessment that “industrial production fluctuates indecisively”.
“We expect industrial production to decline by 3.6% mom in February”, says Societe Generale.
The risk on the downside is bigger than usual due to shutdown of transport equipment factories because of issues relating to supply of parts, added Societe Generale. Meanwhile, Japan’s real exports grew strongly by 1.9% m/m in February. However, global markets continue to be uncertain and the Bank of Japan’s review on exports has been varied. The central bank’s assessment on exports in December 2015 was “more or less flat” to “picking up”, but it revised down in March 2016 to “the pick-up in exports has recently paused”.
The Japanese government, on the other hand, has kept its assessment unchanged on exports; but it recently revised it in March to “exports are almost flat”. The government’s overall view regarding production is that it will be “flat”. The central bank’s scenario has become less positive since worries regarding global uncertainty became strong.
The BoJ downwardly revised its total assessment on economy somewhat in March. The central bank stated that the country’s economy continues on its modest rebound trend even if exports and production have been weak mainly because to impact of slowdown in emerging nations. According to the BoJ, production and exports will continue to be sluggish for some time.
The March production plans in the production survey indicate a strong growth of 3.2% m/m. According to Societe Generale, the inventory adjustment has been solid and there is not much risk of serious downturn in production. However, still there are certain risks on the downside. With solid uncertainty regarding slowdown in emerging economies, business confident might decline because of geopolitical risks. Hence, it might take some time to confirm that production and exports are rebounding strongly.
“In 2016, we expect to see a stronger economic growth rate of slightly above potential growth rate, and indeed this is a necessary condition for Abenomics to succeed. However, there is an increasing risk that this condition will not be met”, says Societe Generale.
According to the available Tankan data, this is because the Japanese yen gained and the USD/JPY dropped below the manufacturers’ assumption of a FX rate of 118.
The material has been provided by InstaForex Company – www.instaforex.com