Japan Apr industrial production likely to decline on dampened manufacturing

Japan’s April industrial production, to be released Wednesday is likely to decline on a dampened manufacturing environment amid an earthquake-hit Kumamoto that disrupted manufacturing activities in the region.

While a government survey on companies’ production plans points to an expansion in April output, some other indicators – manufacturing PMI and inventory ratio – suggest that output may actually witness contraction. Industrial output is expected to decline by 1.0 percent m/m with industrial output declining 1.5 percent post the Japan earthquake in March when the same plunged by 16.5 percent.

Amongst others, headline CPI dropped to -0.3 percent on year from 0 percent in the previous month, and the core-core CPI also slowed notably to 0.9 percent from 1.1 percent.

Meanwhile, during the G7 Summit held last week, Prime Minister Shinzo Abe had warned of a Lehman-scale financial crisis if global risks are not attended properly. A stagnant growth amid signs of mild inflation increase chances of a policy easing by the Bank of Japan. However, global conditions may pose a risk to Japan’s scheduled sales tax hike in 2017.

"There is a rising chance that Japan will resort to fiscal policy and announce a postponement of the consumption tax hike, between now and the July election," DBS said in a research statement.

While the G7 leaders did not specify a global crisis during the final statement, they promised to use all the policy tools to strengthen global demand and address the supply constraints, with the emphasis given to fiscal measures and structural reforms.