— Adds Details, Economist Comments Throughout
— Japan May Industrial Output +5.7% M/M Vs Apr +1.6%
— Japan May Industrial Output MNI Poll Median Forecast +5.4% M/M
— Japan Industrial Output Posts 2nd M/M Rise in Row
— METI Forecast Index: Japan June Output +5.3% M/M, July +0.5%
— METI Upgrades View: Japan Output Recovering From Quake Impact
— Japan May Industrial Output -5.9% Y/Y Vs Apr Rev -13.6%

TOKYO (MNI) – Japan’s industrial output rose for a second straight
month in May on higher production of automobiles and machinery as
manufacturers are rushing to fix quake-ravaged production facilities and
supply chain networks, government data showed Wednesday.

Production at the nation’s factories and mines rose a seasonally
adjusted 5.7% in May from the previous month, bringing the industrial
output index to 88.8, following a revised rise of 1.6% in April.

It was the second largest gain on record after a 7.9% increase
marked in March 1953.

The nation’s industrial output posted a record drop of -15.5% in
March, hit by the March 11 earthquake disaster.

The May headline figure came in slightly stronger than the median
forecast by economists in a Market News International survey for a 5.4%
rise.

The seasonally adjusted monthly rise in May was below the 8.0% m/m
gain predicted in the ministry’s forecast survey released last month.

METI’s latest survey of firms’ forecasts showed that overall
production is expected to rise 5.3% m/m in June — revised down from the
7.7% rise estimated in the previous survey — and will increase further
by 0.5% in July (first estimate).

Those gains are expected to be led by recovering production of
automobiles and electronics, the METI said.

Based on the latest data and the outlook for the next two months,
METI upgraded its overall assessment for the first time in five months,
saying, “Industrial production is recovering from the impact of the
Great East Japan Earthquake.”

In the previous month, the ministry said industrial output “appears
to be sluggish at low levels due to the Great East Japan Earthquake but
it is expected to recover gradually.”

If the outlook for June is realized, April-June output would still
show a 3.8% drop from the previous quarter, posting the fourth
consecutive q/q drop after -2.0% in January-March, a METI official said.

The official said output in the quake-hit area surged 18.8% in May
from April while output in other regions rose 4.5%.

In May, output of transportation equipment — mostly automobiles —
rose 36.4% m/m in May following declines of 1.9% in April and 46.7% in
March, which was the largest drop on record.

Output of mini vehicles with engine displacement of less than 660cc
rose 48.0% in May, while output of large passenger cars with engine
displacement of over 2000cc surged 54.8% and output of small passenger
cars with engine displacement of over 660cc but less than 2000cc jumped
95.4.

Japan’s 12 major automakers are expected to see their plants
operate at 80% of capacity on average in June, according to a recent
Nikkei report.

As a result, total domestic auto output in fiscal 2011 is on course
to reach around 8 million units — only about 10%, or roughly 1 million
units, off from the 8.99 million units produced in fiscal 2010.

Meantime, the METI data showed that output of general machinery,
including semiconductor-processing equipment and flat panel-making
equipment, rose 5.3% in May following a 12.0% rise in April.

Compared with year-earlier levels, production in May fell 5.9%,
with the pace of decline decelerating from -13.6% in April and -13.1% in
March.

Economists noted that some manufactures are increasing their output
and inventories ahead of the peak power consumption time in the summer,
when businesses and households in eastern Japan are requested by the
government to slash electricity use in order to avoid a massive
blackout.

The METI official also said that some aluminium and plastic makers
increased their output in May to cope with expected power shortages this
summer caused by reduced electricity supply from nuclear power stations
across the country amid the lingering radiation crisis in Fukushima.

“While power shortages could stand in the way of a smooth recovery
of industrial output during the summer, output is likely to recover to
pre-quake levels in the October-December quarter,” said Taro Saito,
senior economist at NLI Research Institute.

Saito shrugged off the fallout from a slowdown in growth among
emerging economies, saying that “buoyant domestic demand stemming from
ongoing reconstruction efforts should offset any slowdown in overseas
demand, if any.”

Other details from the latest data:

Shipments: May -5.3% m/m vs. April a revised -2.6%, posting the
first m/m rise in three months.

Inventories: May +5.1% vs. April +0.5%, marking the second straight
m/m rise.

The inventory-to-shipments ratio: May -4.9% vs. April a revised
+14.9%, showing the first m/m fall in three months.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4835 **

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