Japan Industrial Production Expected to Continue to Recover

Japan reports retail sales figures first thing on Wednessday in Tokyo. A 0.4% month-over-month gain is expected, which would leave it off 6% over the year. Retail sales tends not to be a significant number in Japan or for the yen, as the Japanese economy traditionally stands on three legs: government spending, capex and exports. Japan reports industrial output figures on Thursday in Tokyo. The consensus is for a 2.5% increase in June after a 5.7% in crease in April. The increase would be the fourth consecutive month of gains. If the consensus is right, this would represent the largest quarterly rise in modern times.

Several factors seem to be at work: Japan, like the U.S., ran down inventories at near-record pace. Japan, like many other countries, also used fiscal stimulus to fight the economic downturn. In addition, foreign demand, especially China (geographically) and autos (sectionally) appear to be rebounding, helping boost exports. Note that exports rose 1.1% in June.

The jump in industrial output is fueling speculation that Japan may report positive Q2 GDP when it is released in mid-August, just before the national election.

Recall that earlier this month, the BOJ raised its economic assessment--citing a recovery in trade and manufacturing. The Japanese economy contracted at 3.8% in January-March period (14.2% annualized pace). Even if the industrial production figures comes out in line with consensus, it would still leave output about 23.5% below year ago levels. Capacity utilization remains low, suggesting that Japanese corporate will not necessarily be boosting capex in the near-term.

The dollar has been turned back from JPY95.50 area. It has found some temporary support near JPY94.00, but better support is near the trendline drawn off the mid-July lows (just below JPY92) and comes in near JPY93.65. A break here would likely coincide with a deeper correction in the equity markets, which have had among the strongest two week-runs in recent memory.
Japan Industrial Production Expected to Continue to Recover Japan Industrial Production Expected to Continue to Recover Reviewed by magonomics on July 29, 2009 Rating: 5
Powered by Blogger.