Japan’s Industrial Production likely to drop by 0.2% m/m in December

Japan's December industrial production is expected to drop by 0.2% m/m. Uncertainty in emerging economies, such as China, and growth being negative for two continuous quarters in Q2 2015 and Q3 2015 in Japan, has led production to be weak. According to the Ministry of Economy, Trade and Industry, "industrial production fluctuates indecisively".

However, in the last few months, real exports recovered, growing 2.1% m/m in September, 1.3% m/m in October and 1.6% in November. Also, production rebounded in September and October, and has averted a downturn.

The fall in production in November and likely decline in December is expected to be for a temporary correction because of the rapid rebound in September and October. In Q4, production is expected to reflect a recovery of 1% q/q. According to the Survey of Production Forecasts, strong growth of 6% m/m is expected in January. However, business sentiment might decline because of geopolitical risks.

The Bank of Japan, in its December monetary policy meeting, has revised its assessments on exports upwards to "picking up" from "more or less flat". Meanwhile, the Japanese government has revised up its assessment on industrial production from "industrial production is in a weak tone recently" to "industrial production is flat recently".

The central bank in December decided to keep its main monetary policy unchanged while applying supplementary measures to bolster the operation. BOJ Governor Kuroda stated in January that the central bank is ready to undertake drastic actions if required.

"While some see that the possibility of additional QQE measures has increased, we do not think this is the case as the BoJ has judged that exports are recovering and the economic situation is improving", says Societe Generale.