Japan’s industrial output is likely to have remained flat in June. According to a Societe Generale research report, industrial output is expected to have been flat at 0 percent on sequential basis in June. The 2.6 percent fall in the previous month was possibly because of the golden week during the start of May that was longer than usual with several factories closing down for certain time, exerting additional downward pressure on industrial output.
“We expected that a rebound would occur in June, however with uncertainties in the global economy and markets remaining stronger including the Brexit vote, producers likely revised down their production plans, making June production weak,” stated Societe Generale.
Given that the survey of production forecast reporting 1.7 percent for June, it is expected that the result might be much weaker. The forecast for July is recorded at 1.3 percent, but this might be downwardly revised due to solid uncertainty in the future.
Exports, production and consumption are expected to have bottomed out, but, with production continuing to “stagnating indecisively”. There is no pressure pushing up production, and with the Japanese yen appreciating considerably, producer activity has begun to stagnate.
“Industrial production for Q2 2016 will likely be slightly negative as well, continuing from -1.0 percent Qoq for Q1 2016”, added Societe Generale.
If uncertainty in the global markets and economy persists, and producers adjust production on concerns of a stronger yen and increased inventory, production is expected to continue to fluctuate indecisively and the economic growth trend is likely to then hover around 0 percent.
The real economic growth for 2016 requires growing at a pace similar to the potential growth rate of 0.5 percent for Abenomics to succeed. Also, the economic growth pace for next year should quicken and exceed the potential growth rate, stated Societe Generale.
Given this backdrop, a sense of crisis in the government and the Japanese central bank is emerging. An economic stimulus package possibly surpassing JPY 10 trillion is to be set up during the autumn extraordinary session of the Diet, and the central bank is likely to set up additional easing during its July monetary policy meeting.
If the central bank’s easing and the economic stimulus package are not as huge as the markets are anticipating, it might lead to a major disappointment in the markets increase the possibility of a deceleration of economic growth.
“We expect production to recover in the latter half of the year as the effects of the economic stimulus package start taking effect with the global economy recovering and exports expanding again,” added Societe Generale.
