Japan production output surged in December

Industrial production in Japan accelerated last December, pushing output to the highest level since the global financial crisis. The third straight month of rising factory output points to solid economic growth in the fourth quarter.

Industrial production rose 2.7 percent last December from November (forecast 1.5 percent). Year-on-year production climbed 4.2 percent (forecast 3.3 percent). Production is forecast to fall 4.3 percent this month compared with December, and rise 5.7 percent in February.

The production index reached the highest level since 2008. Major contributors to December production were transportation equipment and general-purpose machinery, the economy ministry said. A big part of the expected drop in January output is a forecast for a 17.7-percent decline in production of transportation equipment, including autos and auto parts, the ministry said.

Strong global demand has driven a yearlong recovery in exports, prompting Japanese manufacturers to steadily raise production throughout 2017. Yet, increasing domestic consumption remains key to Japan’s economic recovery becoming self-sustaining.

A raft of data released on Tuesday showed that consumers remain cautious about spending in the absence of bigger pay increases.

“The numbers look good, which is my simple impression,” said Hiroshi Hanada, head of economic research at Sumitomo Mitsui Trust Bank, adding that the Japanese economy likely expanded again in the fourth quarter.

“Production is rising firmly on a quarterly basis, too.” While output may fall in January, it is forecast to rebound in February, Hanada noted. “I don’t think the upward momentum for production will be lost.”

“It’s debatable whether domestic demand is strong, but the consensus is that exports will continue to rise,” said Yasutoshi Nagai, chief economist at Daiwa Securities Co. “So production will remain strong and keep going up.”

The January forecast is a bit concerning, but it’s unlikely to change the general trend, Nagai said.

 

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