Overall assessment on Japan's industrial production may be revised down further

August industrial production expect a growth of 0.6% mom, or 1.4% yoy, after a decline of 0.8% mom (0.0% yoy) in July. Production has been volatile over the last five months (-0.8% mom in March, +1.2% mom in April, -2.1% mom in May, +1.1% mom in June and -0.8% mom in July), probably due to the unstable export environment, especially for exports to emerging economies including China. Considering the drop in July, only a small rebound is expected in production for August. This may indicate that production is now weakening as a trend. Real exports were also weak in August (-0.3% mom, after -5.1% mom in May, +1.1% mom in June, and +0.7% mom in July). 

Overseas demand remains unstable, and many companies are unwilling to invest in inventories (components and finished products produced overseas alike). Given the global economic uncertainty, companies have probably become more cautious. As a result, growth in production will probably be much more modest than the Survey of Production Forecasts for August indicates (+2.8% mom). 

In July's monthly economic report, the government revised down its overall assessment on production from "production is showing weakness in some areas but overall is improving" to "production remains flat". In the August monthly economic report, the assessment on exports was revised down to "Exports are in a weak tone recently" from "Exports are almost flat" in July. As the Survey of Production Forecasts for September is showing a drop to -1.7% mom, the overall assessment on production could be revised down further. The production trend in 2015 depends on how strongly exports pick up on the back of a US economic recovery, and also on the extent to which the Chinese economy avoids an economic downturn.