Japan's Q3 real GDP likely to be 0.0% q/q

Japan's August industrial production data surprised sharply to the downside. Production now appears set to log a second consecutive quarterly decline of more than 1% q/q in Q3 based on the METI forecast index for September (0.1% m/m) and individual industry biases. 

The METI forecast index for October looks better (4.4% m/m), but may reflect distortions in specific industries. Also, the inventory/shipment ratio index spiked to its highest level since immediately after the March 2011 earthquake. Given the weak trend in demand from Asia, production could remain sluggish into Q4.

"On the same day, Q3 real GDP forecast are lowered to 0.0% q/q saar (Q2: -1.2%) from 1.0%, implying a stronger risk of a technical recession (q/q decline in real GDP for two consecutive quarters). This is consistent with the relatively stable correlation between GDP and IP since Q1 05. Also, Q4 15  GDP is forecasted to 1.2% q/q saar. In calendar terms, the new (old) forecasts are 0.6% (0.7%) for 2015 and 1.1% (1.3%) for 2016", says Barclays.