— METI Forecast Index: Japan Sep Output -0.1% M/M, Oct -2.9%
— METI Downgrades View: Japan Output Flat, Likely To Be Weak

TOKYO (MNI) – Japanese industrial production unexpectedly slumped
for a third month in a row in August, drop 0.3% m/m after -0.2% in July
and -1.1% in June, on lower demand for general machinery, liquid crystal
devices and trucks, data from the Ministry of Economy, Trade and
Industry released on Thursday showed.

The seasonally adjusted monthly drop in August came in much weaker
than the consensus call of a 1.1% rise and far below the 1.6%
m/m increase predicted for August by the ministry’s forecast survey last
month.

Moreover, output is seen continuing to decline in the coming two
months. METI’s survey of firms’ forecasts showed that production will
dip by 0.1% m/m in September — revised down from the 0.2% rise
estimated in last month’s survey — before plunging by 2.9% in October
(first estimate).

Based on the latest data and the outlook for the next two months,
the Ministry of Economy, Trade and Industry (METI) downgraded its
assessment from last month, saying, “Industrial production appears to
be flat and is likely to be weak.”

Previously it had said, “Industrial production continues to show an
upward movement although it has been pausing temporarily in part.”

The drop in August output and outlook for additional declines,
combined with other recent subdued economic data, will put additional
pressure on the Bank of Japan to announce further credit easing steps
at its meeting next week.

Until June’s decline, output had gained every month since March
2009 except for the 1.1% drop in February this year. The sharp 1.1%
decline in June was seen at the time as a temporary blip, due in part to
distorted seasonal adjustments caused by the Lehman shock of 2008.

Production had generally improved from the sharp plunge seen from
late 2008 through early 2009. It rose a record +4.6% m/m in May 2009.

Compared with the year earlier level, production in August this
year rose 15.4% y/y following +14.2% in July. It has recovered from the
record 38.6% drop in February 2009. The 6.4% rise in December 2009 was
the first y/y gain in 15 months.

Other details from the latest data:

Shipments: Aug -0.5% m/m vs. July -0.1% m/m, posting the second
straight m/m fall and the fourth drop this year. The drop was led by
decreases in transport equipment, general machinery and other
manufacturing.

Inventories: Aug +0.7% m/m vs. July -0.5% m/m, marking the first
rise in two months and sixth gain this year. The rise in inventories
were led by increases in electronic parts and devices, general machinery
as well as information and communication electronics equipment.

The inventory-to-shipments ratio: Aug -0.9% vs. July +1.4% m/m, the
first drop in two months.

tokyo@marketnews.com
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