Japan’s industrial output contracted the most since March 2011 earthquake, declining 6.2% m/m in February. The sharp fall in output was because of Lunar New Year and disturbance in the supply side in the auto industry. However, both these factors are temporary and production is expected to have normalized in March, according to HSBC.
According to manufacturers, production in March is expected to recover strongly by growing 3.9% m/m sa and stronger in April by 5.3%. Moreover, electronics and general machinery’s producers are also expecting stronger demand for products in the coming months.
However, external and domestic demand have remained weak, making it doubtful if the rebound in March and April production will be as strong as projected, according to HSBC. The flash Nikkei manufacturing PMI for Japan dropped further in March to 49.1 from February’s 50.1. New orders and new export orders both continue to be sluggish.
Hence, production is expected to fall short of manufacturers’ projections in the near-term, added HSBC. It projects the industrial output to return to growth in Q2; however, the rebound is expected to be slow.
“A contraction in Q1 CY16 IP looks inevitable: production would contract 0.8% q-o-q sa even if manufacturers' 3.9% m-o-m sa IP forecast is realized. Production is seen rising 0.6% q-o-q sa in Q2 CY16”, says HSBC.
The weakness in overall GDP growth and H1 CY16 production increases the possibility that the BoJ will react in Q2 CY2016. According to HSBC, the Bank of Japan is expected to boost its purchase of equities during its meeting in April. Also, the government is likely to ease fiscal policy.
“We expect further fiscal easing measures to be announced later in Q2 CY16, including a new supplementary budget package and deferral of the April 2017 VAT hike. We see these measures lifting GDP growth to an above-consensus 0.8% in CY16”, says HSBC.
The material has been provided by InstaForex Company – www.instaforex.com